Banks and their agents routinely break into homes in which they have no legal interest.

It should come as no surprise that the banks that were incompetent and sloppy in their handling of issuing loans and then foreclosing on them would also be incompetent and sloppy in their retaking possession of the homes they (may) have foreclosed upon.  It is not uncommon for banks or their agents to drill the locks, re-key the doors, damage the property and steal from the home under color of authority from a foreclosure sale.  Oftentimes the banks have no idea what Michigan law requires before they can retake possession of a property and assume that there is no redemption period.  The problem is compounded by police departments that are similarly ignorant and unwilling to take a report to document the problem.  Civil litigation may be the only recourse for a homeowner so violated.  The Michigan Consumer Protection Act may provide some assistance for homeowners, but the Michigan Supreme Court has dramatically reduced the scope of the Act making outcomes uncertain.  Still, it is my opinion that breaking into houses illegally before the end of the redemption period may, with the right fact pattern, be the basis for a MCPA lawsuit.

Who's who in the mortgage foreclosure mess

As detailed in earlier posts much of the current scandal does not directly impact Michigan homeowners due to the fact that most foreclosures in this state proceed by advertisement rather than judicial action.  Many mortgagors, however, have questions about what the problem is in other states and why banks have place a temporary halt to foreclosure actions.  The attached article summarizes the situation nicely and explains the role played by various entities in the foreclosure fraud.

Mortgage Foreclosure Fraud

The news is filled with large banks acknowledging that they have or may have fraudulently foreclosed on properties throughout the United States in jurisdictions that require foreclosure by judicial action (i.e. lawsuit) Michigan allows foreclosure by judicial action, but the vast majority of residential mortgages are foreclosed by advertisement. Michigan foreclosure law was, however, recently changed to encourage and facilitate banks modification of mortgage loans. If a borrower timely invokes their rights to a mediation hearing and demonstrates that they are eligible for a loan modification and the bank denies the loan modification, then the borrower can force the bank to foreclose by judicial action which may cause problems for the bank.

The problem arises from the way that banks became the owners of the loans they now seek to foreclose upon. If the paperwork wasn't put in order when the account/contract was securitized and sold, then perhaps the homeowner has a defense to the foreclosure. Ultimately if the money was borrowed for the purchase of a property and not repaid the homeowner is likely to be required to pay or move, but what is important here is for the borrower to create some leverage in their negotiations with the bank be that for a loan modification, a deed in lieu of foreclosure, treatment of the deficiency or simply more time to move.

Consulting with an attorney can provide you with direction on how to use this situation to your advantage.

Fannie Mae Increases Penalties for Strategic Default

FNMA recently increased to 7 years the length of time a borrower must wait before being considered for a Fannie Mae backed loan after defaulting on a mortgage they could otherwise afford. Apparently a reaction to the widely publicized actions of so called "strategic defaults" by borrowers. These are people who treat their purchase of real estate as an investment and decide to walk away from their homes even though they can afford the payments. Although Fannie Mae mostly holds loans under $500,000 and the above-guidelines only apply to FNMA loans, default rates for mortgages in excess of $1,000,000 are on the rise. It often makes good financial sense to abandon a property that is worth significantly less than the mortgage(s) that are recorded against it.

Strategic defaults aren't a good decision for everyone. As noted above, the consequences of default not only limit your ability to purchase a home in the future, but in Michigan a mortgage lender is able to pursue a deficiency judgment following foreclosure. Before choosing to default on any debt obligation, it is wise to consult with an attorney and a financial advisor.

Make your own loan modification by understanding the foreclosure process.

Many people, frustrated with the unwillingness of banks to process meaningful loan modifications are taking matters into their own hands.

http://www.nytimes.com/2010/06/01/business/01nopay.html?hp

Michigan allows for both foreclosure by judicial action and by advertisement. The vast majority of foreclosures are by advertisement, but even this expedited process allows homeowners to live in their homes for a significant period of time without making any payments to the banks. Different aspects of the process can be stretched out allowing you to maximize the amount of time until you have to move.

During this time, you can save the money you would otherwise have paid to your mortgage lender and get re-established. It is not uncommon for my clients to live in their homes for well over a year without making any payments. Of course there are consequences of doing so and this isn't something you should undertake lightly, but it is something I have been helping clients with for fifteen years. If you'd like to learn more contact my law office for an appointment.

Beware the potential for a deficiency judgment!

http://finance.yahoo.com/news/Mortgage-lenders-pursue-cnnm-3107909798.html?x=0

Michigan allows mortgage lenders to pursue deficiency judgments against borrowers who do not fully payoff their mortgage loan. This can happen even if the bank approves a short sale or a deed in lieu of foreclosure. When I work with homeowners we work together to make sure that the banks either waive their right to seek a deficiency judgment or that the borrower fully understands what options the banks have to pursue them after closing.

Banks can also pursue mortgagors for a deficiency following a foreclosure in which they take the home. It is now regular practice for banks to bid less than the debt at a sheriff sale thereby establishing a deficiency and providing themselves the option to sue their former customer for the difference between what was owed and what the "auction" netted for the bank.

Walk away from your mortgage?

Many homeowners who have seen the values of their homes decline by 30 - 50% over the past couple years are beginning to think about their mortgage in much more objective terms. Rather than hope against all signs to the contrary that their homes will someday return to the valuations prior to the crash, some people are deciding that their best move is to simply walk away from their mortgages in the same manner that banks have walked away from their obligations since 2008. The New York Times writes about this phenomenon in the article below.

http://www.nytimes.com/2010/01/10/magazine/10FOB-wwln-t.html?emc=eta1

Taking this course of action is not without consequences and should not be entered into lightly or without professional guidance. Michigan law allows banks to sue for a deficiency judgment following a foreclosure of real estate so simply walking away from a home that is "underwater" is not necessarily a clean or a good solution for those ownning property in the state.

I have helped people think strategically about their residential mortgages for fifteen years and everyday I talk to homeowners who owe more on their homes than their home is worth. In these challenging times it is important to consult professionals who understand bank loss mitigation departments and Michigan foreclosure law before doing something that may result in the loss of your home, damage to your credit and litigation.

Foreclosure from the Bank's Perspective

http://freakonomics.blogs.nytimes.com/2009/05/01/power-question/

Foreclosure is an intensely personal event for most homeowners, but for the banks it just a business transaction. Article suggests things are likely to get a bit worse before they get better.