Pre-Foreclosure
Ben Hillard of Castle Law Group to Speak at the September 27, 2011 Pinellas Realtor Organization Meeting
September 15, 2011 | 
Author Former banker turned foreclosure defense attorney, Ben Hillard, will be the featured speaker at the Pinellas Realtor Organization (“PRO”) September 27, 2011 meeting. The event runs from 10:00 am to noon. Ben is a foreclosure defense attorney with Castle Law Group, P.A. Ben has conducted loan acquisitions work for Ocwen, Lehman Brothers, Countrywide, Goldman Sachs and other lenders. Ben Hillard’s topic is “How Lenders Make Decisions Concerning Short Sales, Foreclosure, and other Loan Workout Options”. The format for the presentation will be lecture, follow by a question and answer period.
Posted in 
Tags: 
FORMER BANKER TURNED FORECLOSURE DEFENSE LAWYER
Benjamin “Ben” Hillard, Esq., JD/MBA
I have spent most of my career as an investment banker and consultant conducting residential and commercial loan acquisitions due diligence; essentially buying loans from other banks. I’ve conducted loan purchase due diligence on literally billions of dollars of loans and have worked for Ocwen, Lehman Brothers, Goldman Sachs, Countrywide and many other institutional lenders conducting loan-level acquisitions due diligence. I have first-hand knowledge of: how Bank “A” buys loans from Bank “B”; individual loan analysis and portfolio pricing strategies; and put-back or repurchase provisions of loan purchase contracts. I have also been through Countrywide’s forensic loan fraud training. Finally, I maintain a Florida real estate broker’s license and I am a former Florida licensed real estate appraiser and title agent. I can’t imagine there is anyone better prepared to render advice and litigate mortgage loan issues.
Our average client is probably $150,000.00 upside-down in a primary residence or an investment property. Our client base includes lawyers, banking executives, mortgage brokers, investment managers, real estate brokers and other business executives. The litigation goal of the vast majority of our clients is to get the lender to refrain from pursuing a deficiency judgment (cancel the promissory note) in exchange for surrendering the property or its equivalent value via final judgment, deed-in-lieu or short sale.
I also accept speaking engagements, and, over the past twelve months, have spoken at the Greater Tampa Association of Realtors (“GTAR”), the Mid-Pinellas Chamber, RBC Bank, and The Board Tampa Bay. Topics included: “The Financial and Banking Crisis”, “How Banks Make Decisions Concerning Upside-Down Loans”, and “The Statistical Correlation between Average Incomes and Average Home Prices”.
How Long Will It Take to Resolve a Foreclosure Suit?
How long will it take to resolve a foreclosure suit? How long will it take to attempt to accomplish reasonable foreclosure defense litigation objectives? On average, our office has historically seen the process take around 18 months from the filing of a suit to resolution of the same. A side effect of defending a foreclosure suit is time. Time is often your friend. The longer the foreclosure suit takes, the more pain the lender suffers, and the more likely the lender will realize that it should cut a deal. We are also seeing increases in the time involved in attempting to resolve a foreclosure suit by short sale in that the lender appears to believe that it can get more for the property by taking it back and selling it themselves, than what short sale purchasers are willing to pay. On top of this, the lender’s decision-making is greatly dependent upon or primarily driven by what works out best for the lender’s balance sheet. Such factors often include, how the loan was financed by the lender, what the lender paid for the loan, whether there is mortgage insurance, what triggers the mortgage insurance to take effect, etc. These internal lender factors often change so that what works one month or one quarter, does not work next month, and vice versa. In all of this, don’t loose sight of the primary goal, the reason to defend a foreclosure suit is to get an agreement with the lender to refrain from pursuing a deficiency judgment / to cancel the promissory note in exchange for the property or its equivalent value through a short sale, assuming the borrower is upside-down in the property.
Another set of factors that contribute to the length of time involved in resolving a foreclosure suit is that court system is clogged and that the plaintiff, “the lender” in a foreclosure suit, is largely responsible for the pace of the litigation. When the attorney for the lender, or the in-house attorney for the lender is ready to deal with a file or has recently reviewed a file, that is the time that deals are struck.
A recent development that concerns the time involved in resolving a foreclosure suit is the implosion of several firms that represent the lenders; David Stern’s office and now Ben-Ezra & Katz. This not only causes problems for those cases that are no longer going to be handled by those firms, but the foreclosure cases pulled from these firms must be sent elsewhere. We have a number of files that have sat for six or eight months awaiting new counsel to appear on behalf of the lender. It also takes time for the remaining foreclosure plaintiffs firms to ramp up, hire attorneys and staff, and to figure out the status of the cases recently transferred to the new firm. All these factors will certainly contribute to longer timelines in the foreclosure defense arena going forward.
Cutting Deals with the Bank
Undercapitalized or Upside Down Lenders Provide Greater Opportunities
for Borrowers Facing Foreclosure to Cut Deals
According to an article in the South Florida Business Journal, Florida is tied with Georgia and Illinois for having the most banks in the nation with major capital shortfalls according to a study by The Street.com ratings and SNL Financial.
Where lenders and banks are under capitalized, borrowers have greater opportunities to cut deals with lenders on upside down properties. There are many reasons why undercapitalized banks and lenders present better opportunities for borrowers to cut deals.
First, undercapitalized lenders often do not have sufficient staff or resources to participate in highly structured loan workout programs. In other words, undercapitalized lenders often have more flexibility to consider a wider range of loan workout proposals.
Second, because there is often less formal internal structure, undercapitalized lenders may be more likely to take the borrowers individual circumstances into account when making loan resolution decisions.
Third, Florida foreclosure defense attorneys have an easier time defending foreclosure suits by lenders or banks that have been taken over by the Federal Deposit Insurance Corporation (“FDIC”), the Office of Thrift Supervision (“OTS”), or by another bank in lieu of government takeover. Initially, after a loan is transferred to a new owner/entity, it often takes several months for the new owner/entity to get up to speed on the loan or foreclosure status. Secondarily, after such an acquisition, the risk profile of the assets [loans] should shift in the direction of market value. In other words, if a new entity owns the loan, it should have acquired the loan at a significant discount, giving the new/current owner of the loan more flexibility to cut a deal with the borrower to resolve a contested foreclosure. Finally, Florida foreclosure defense attorneys have an easier time defending foreclosure suits where the loan has changed hands one or more times. Where a loan has changed hands several times, discovery becomes more complex, assignments may be missing, original documents could be lost, authority to foreclose may become unclear.
Therefore, the banks pain becomes the borrower’s gain.
Short Sales may avert Foreclosure
It is possible to sell your property in a short sale prior to completely ruining your credit with a foreclosure suit or running months and months delinquent.
While most lenders will not approve a short sale if the mortgage is current, selling a property by way of short may be accomplished between the period after missing that first payment and before the lender files a foreclosure suit.
Historically, a lender does not file a foreclosure suit until the borrower is 90 days delinquent. However, in this market, some lenders are waiting 120 days or more before filing and serving a foreclosure suit. Quite often, if a short sale is pending, the lender refrains from filing suit while awaiting a short sale.
It is during this period, from one month delinquent to four months delinquent that it is possible to short sell a property prior to the lender filing and serving the foreclosure suit.
The short sale process starts with (1) engaging a realtor and getting an offer to purchase, (2) a short sale application. However, there are important items to take care of prior to accomplishing these two seemingly simple tasks.
The real first step is meeting with attorney familiar with foreclosure defense and lending /banking.
A foreclosure defense attorney is necessary to look out for your interests when engaging a realtor to list and sell a property by short sale. Many real estate brokerage agreements contain provisions that may be adverse to you in your attempt to short sell a property.
Things you may want to consider,
include: (1) make the real estate broker commission contingent upon actual closing, (2) provide that the Seller has discretion concerning the type and nature of the documents to be provided to the Lender for the Lender to evaluate whether or not to approve the short sale, and (3) that the Seller is not obligated to sell/close unless the Seller is satisfied with the terms of the Lender’s approval letter, contract or settlement with the Lender.
A foreclosure defense attorney may also be necessary to advise the borrower on how best to fill out a short sale application. An attorney may help determine what things to include in the short sale application, and what things to omit and/or tell the lender that your attorney has advised you not to provide certain information because this matter may wind up in litigation.
After engaging a realtor, for a quick short sale, the goal is to list the property at a price that will get noticed.
A lender is often willing to accept an amount less than what the lender believes is the true value because the lender typically evaluates loan resolution scenarios based on the time value of money. In other words, a lender may be better off receiving $175,000 today as proceeds from a short sale, than $225,000 in 12 months after paying a foreclosure attorney thousands of dollars in fees and costs to conduct the foreclosure suit plus real estate broker commissions, carrying costs, property maintenance costs, and the costs of maintaining the lender’s loss reserve accounts.
After getting an offer and completing all or a portion of the short sale package, it is in the lender’s hands.
However, if an offer to purchase can be acquired and short sale package completed prior to the lender filing a foreclosure, chances are that the lender will not file the foreclosure suit while closing is pending.
Hiring a Realtor or Broker to Short Sell Your Property
What you need to know when hiring a Realtor or Real Estate Broker to do a short sale of your property:
Hiring the right realtor or real estate broker to conduct a short sale may be one of the largest challenges facing short sellers today. Messing this step up could devastate your chances of avoiding a deficiency judgment.
Your Realtor or real estate broker may not have your best interest in mind. Your goal is to avoid the potential for the lender to seek a deficiency judgment. The Realtor or real estate broker’s goal is to sell the property and collect a commission, regardless of whether the Lender agrees to refrain from pursuing a deficiency judgment. This is one of the most important reasons to be represented by an attorney. Be certain that your interests are being protected throughout the short sale process.
Many Realtors only look out for the commission and do not care whether or not the homeowner avoids a deficiency judgment, and their brokerage agreements read accordingly. In fact, it has become prevalent for real estate brokers to include a short sale addendum in the real estate brokerage agreement that could have a negative impact on your best interest. For example, many short sale addenda to real estate brokerage agreements require that the client provide “ALL” information the Lender may request to evaluate whether on not the Lender with “approve” the short sale. The problem is that the Lender’s request for financial information is a fishing expedition to determine whether or not the Lender will pursue a deficiency judgment. You don’t want your agreement with your real estate broker to have a negative impact on your end goal of avoiding a deficiency judgment.
Therefore, it is important to have an attorney review the agreement between you and your real estate agent or broker before you sign a real estate brokerage agreement.
Likewise, it is also important to have an attorney review the offer to purchase or real estate purchase and sale agreement prior to signing. Many real estate brokers include a short sale addendum that doesn’t include a provision that makes “closing” contingent upon the Lender’s agreement to refrain from pursuing a deficiency judgment and cancel the promissory note. This is important because without such a provision, the short sale buyer/purchaser could sue to force the short sale seller to “close” where the Lender approves the short sale, but will not agree to refrain from pursuing a deficiency judgment and canceling the promissory note, the ultimate goal of many of our clients.
Every short sale situation is different. Therefore, you need advice that is specifically tailored to your individual situation. Because real estate brokerage agreements come in as many shapes and sizes as there are brokers, a thorough review of the proposed brokerage agreement is mandatory to ensure a consistent strategy to avoid a deficiency judgment. Castle Law Group typically recommends the use of one of our addendums to the brokerage agreement, and one of our addendums to the purchase and sale contract.
The advantage in having Castle Law Represent ONLY YOUR BEST INTERESTS in a Short Sale:
Our addendums typically include the following: (1) make the real estate broker commission contingent upon actual closing, (2) provide that the Seller has discretion concerning the type and nature of the documents to be provided to the Lender for the Lender to evaluate whether or not to approve the short sale, and (3) that the Seller is not obligated to sell/close unless the Seller is satisfied with the terms of the Lender’s approval letter, contract or settlement with the Lender.
WHY THE BANK DOES NOT WANT YOUR PROPERTY
If you have been served with a foreclosure suit or foreclosure complaint, it is important to know that you have options, and that your lender doesn’t want your property.
The information below is for demonstrative purposes only and does not reflect the actual percentages, values or numbers concerning any particular bank.
Lending Guidelines & Regulation: What happens when you are 45 days late
While bank or lenders have different capital structures, banks that are regulated by the FDIC have certain guidelines they must adhere to. For example, XYZ Bank makes a $200,000 loan for an investor to purchase a residential property in 2005. In 2007, the borrower goes 45-days delinquent. The FDIC knocks on the bank’s door and says, “I see this loan is 45-days delinquent, please put $2,000 of your equity capital into a loss reserve account. This $2,000 of equity capital actually represents $20,000 of XYZ Bank’s lending power.
Leverage:
Most bank use LEVERAGE when making loans. When XYZ Bank makes a loan, it puts 10% of its equity capital into the loan, and uses other peoples money to fund the remaining 90% of the loan. The borrowed money could be your own deposits, certificates of deposit (“CDs”), or money borrowed from other banks.
Lending Guidelines & Regulation: What happens when you are 90 days late
When the loan goes 90-days delinquent, XYZ Bank puts the loan into foreclosure. The FDIC knocks on the door again and asks XYZ Bank if it has an appraisal or Brokers Price Opinion (“BPO”) more recent than 12-months. If the bank doesn’t have a recent BPO or appraisal, the FDIC says, “go get one”. If the BPO comes back at $180,000, the FDIC instructs XYZ Bank to put another $18,000 of its equity capital into the loss reserve account because the bank is likely facing a $20,000 loss.
Why/When the Bank takes action:
This doesn’t have to happen too often before the bank is out of equity capital.
Banks have historically put loans into foreclosure after the loan goes 90-days delinquent. However, in this market, many banks cannot afford the FDIC knock on the door and are therefore delaying putting loans into foreclosure.
Why a Deed-in-Lieu of Foreclosure is not a great option for the bank:
Historically, banks would also accept a deed-in-lieu of foreclosure. In other words, an investor could say to XYZ Bank, don’t file a foreclosure suit against me. I will simply deed the property to you, the bank, then the bank would sell the property to repay the loan. However, under such a scenario, if the property value doesn’t significantly exceed the loan amount, the FDIC also requires the bank to set aside reserves because it has an asset that is not generating a return, and more particularly, in case it experiences a loss.
Today, many banks cannot afford to maintain a large portfolio of Real Estate Owned by the bank (“REO”).
Why Banks prefer a “Short Sale”
Therefore, often the best solution is for the owner to list the sell the property, for a loss, with the permission and blessing of the bank … a “short sale”. This puts cash back into the hands of the bank.
Castle Law Group specializes in actively defending mortgage foreclosure lawsuits with the litigation goals of preventing deficiency judgments and 1099′s.