3 banks may be nearing deal on foreclosures

Three big U.S. banks are nearing a settlement in which they would compensate borrowers whose homes were improperly foreclosed upon, according to a CNBC report.

Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. would also agree not to start foreclosure proceedings until they have exhausted all efforts to modify a borrower's mortgage, CNBC is reporting. Many borrowers have complained of receiving foreclosure notices while they're negotiating to lower their loan payments.

CNBC attributes its report of the potential settlement to officials at the banks and among state attorneys general investigating foreclosure practices. It comes as Bank of America and JPMorgan are testifying on the topic to a hearing of the Senate Banking Committee.

Actions in the foreclosure / modification puzzle

The attorney general of Florida has wrapped up his meeting with five lenders and mortgage servicers, Ally, PNC, Bank of America, JPMorgan Chase and Goldman Sachs' Litton Loan Servicing, which has also put foreclosures on hold temporarily. Florida Attorney General Bill McCollum sought the meeting way back on October 12, according to Bloomberg, to "discuss ways to promptly and effectively redeem the integrity" of foreclosures.

Elsewhere, Iowa Attorney General Thomas Miller is moving the 50-state investigation task force forward, but there's also a lot of specific activity by states.

Other meetings between banks and AGs have already been wrapped up. Colorado's AG met with several. Maine may join a class action suit against Ally/GMAC. Ohio's AG has already sued Ally/GMAC.

So it remains unclear exactly how the AGs will move toward a solution. FOX Business has reported, however, that a settlement is coming in December, one that will require judge-driven modifications, better processes and perhaps a fine. You do get the sense that solutions rather than punishment is a priority. But I am not sure if forced modifications will speed up the process. The current modification wave has hardly been inspiring.

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Time is right to buy a retirement home

Money Magazine is urging people a few years from retirement who plan to move when they quit work to consider buying now while home prices and mortgage rates are low.

Buyers who intend to use the place as a second home will pay the same rate as they would pay for a primary residence. If they intend to rent the property out until they retire and they need the rental income to qualify for the mortgage, lenders will consider that an investment property and charge a half to a full percentage point more.

Before foreclosing, judges must hear out homeowners?

In a ruling likely to create more headaches for lenders, a state appeals court ruled that judges can't give banks the go-ahead to foreclose until they respond to defenses raised by homeowners.

A three-judge panel of the 4th District Court of Appeal said that Broward Circuit Judge Peter Weinstein erred when he granted Deutsche Bank a $337,000 summary judgment against Margate residents Judith Alejandre and Sergio Terron, even though the bank ignored their defenses. His decision allowed Deutsche to take title to the couple's property and evict them in February. The case has been sent back to the trial court.

Like many other homeowners fighting foreclosure, the couple raised several defenses. But in what lawyers say has become customary in South Florida courts, the bank didn't answer the defenses, and Judge Weinstein allowed the bank to take title to the house.

The decision comes amid accusations that lenders, servicers and foreclosure law firms are falsifying affidavits and forging signatures to speed the foreclosure process.

Many of the issues raised by Alejandre and Terron in defense of Deutsche's foreclosure suit are similar to ones other homeowners have asserted against other lenders.

The couple said Deutsche failed to attach the original note and assignment of mortgage to its complaint; that it collected payments but failed to credit the homeowners; that it deceived the couple when they tried to modify their delinquent loans; and that it "participated in a full-scale venture to induce the homeowners to borrow funds at exaggerated rates."

It's the process of the motions for summary judgment that the banks have been using to foreclose en masse, even though there exist file defenses. It's the rocket docket.

There's hope the 4th DCA decision will help reform the process. From now on, according to the law.  If the defendant raises affirmative defenses, and there are factual disputes, the defendant deserves a trial.

The ruling gives Alejandre and Terron hope they may be able to get their home back. They are living in a rental apartment in Margate with their four children.

"I would love to get it back if I could," Terron said. "We can pay the mortgage if they lower our payments," he said. "We tried to work that out before, but the lender wouldn't call us back."

Terron paid $95,000 for the house in 1997. In 2005, he refinanced the home for about $200,000 and was paying about $1,500 per month. Things began to go wrong in 2006 when he took out two mortgages with First NLC Financial Services, a Deerfield Beach subprime wholesale lender.  NLC provided Terron and his wife with a first mortgage of $292,000 and a second mortgage of $73,000. The couple's monthly payment jumped to $2,500.  Terron said he refinanced the house to try to keep his struggling restaurant business afloat. But he had to shut down the restaurant and could no longer afford the payments. In 2008, Deutsche Bank, acting as a trustee for a securitized mortgage trust, filed a foreclosure action.

The couple's home is listed for sale for $129,000 with Altisource.

Terron and Alejandre may be lucky that their house has not sold, but that won't be the case with many foreclosure cases that could end up being appealed and sent back to a trial court.  The 4th DCA has typically refused to put foreclosure sales on hold while a case is being appealed.  That was the case with Terron's foreclosure.

"What we commonly saw is the court would condition a stay upon the payment of a large bond," Bleil said. "If the homeowner had the ability to pay this large bond, they wouldn't be in foreclosure in the first place, so in essence it was a denial of the stay."

The ruling could change how judges look at the cases. While the circuit court judges were thinking they could push these things through without getting reversed, they weren't as worried, but this case is going to change things.

Link to the ruling

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Banks Found Flubbing Foreclosures

Already fragile US financial firms are facing a raft of law suits and potential fines after three major mortgage lenders admitted to mishandling thousands of home foreclosures.

Major mortgage lenders Bank of American, JPMorgan Chase and GMAC have in recent days announced they were suspending tens of thousands of foreclosure processes across the country due to apparent improper handling of documents.

Attorney generals in six states are already investigating claims by borrowers that lenders have committed errors in the foreclosure documentations.

Foreclosures have evolved into a massive industry since the start of the economic crunch as Americans faced massive debts, with the number of mortgage defaults soaring from an annual average of one percent before 2008 to 10 percent today.

In 2010, more than three million foreclosures were expected to take place in the United States, figures show.

Documentation problems "are in all probability" likely to exist in 80 percent of them, according to Richard Kessler, an attorney that heads a company dealing with foreclosures.

The influx of hundreds of thousands of foreclosures led lending institutions to employ people who processed the paperwork as quickly as possible in order to put the property on the market in what has become known as "robo-signing".

"This is a case of someone being understaffed cutting corners and trying to get the work down. I didn't see this story as a malicious attempt against borrowers," said Michael Moskowitz, CEO of Equity Now, a Manhattan-based mortgage lender.

Most of the foreclosures are expected to remain in place once the lending institutions re-examine the myriad of cases, even though the process may take years, said Kessler.

"This is something that in all likelihood may also result in disciplinary proceedings and fines but it will not stop the foreclosures because the money is still owed."

But still, the reviews were likely to reveal serious documentation flaws in several cases, which will place the lenders under heavy pressure and risk of big lawsuits from people whose homes have already been foreclosed.

"The likelihood is that people currently facing foreclosure have a better chance to negotiate some kind of compromise with the lender" that will prevent foreclosure, Kessler said.

"There is a potential for class action liability in the United States for billions and billions of dollars on behalf of homeowners who lost their homes in proceedings where lenders used these kinds of phony documents."

Even without massive lawsuits, the suspension was bound to damage the already fragile financial market and housing industry, Moskowitz said.

"It is going to encourage people who are in default already to drag it out. In most of the cases it means they will have to start the process again, even though actually speaking, they defaulted," he said.

"This isn't healthy for the market. It is unhealthy for the real estate market because the values are artificially high because all the foreclosures are not on the market yet.

"It is bad for the finance market because the lenders can't get their money for years. The losses for the banks will be much bigger."