Foreclosure Buzz

Update of July 26, 2008: Congress passed the American Housing Rescue and Foreclosure Prevention Act of 2008 and among the numerous other reasons this bill is weak (see Federal Housing Bill Rescues Banks more than Borrowers here) it kept the provision relating to housing counseling that prohibited funding for civil litigation.  Because that provision was objectionable to many, but not objectionable enough to strip it — the House sponsor tried to provide some wiggle room on the prohibition during the final debate on the bill:

 Mr. Watt: On the Senate side, they put in a provision. We had already said you can’t use any of that money for class action litigation. On the Senate side, they put in a provision that said no civil litigation, and I think I’m satisfied that civil litigation is not broad enough to cover advice about foreclosures, that I’ve asked the Chair just to give me his opinion about whether the language in the bill is broad enough to foreclose any legal assistance with foreclosures.
…
Mr. Frank: All the debates I’ve heard about civil litigation have been concerned that plaintiffs’ lawyers would initiate lawsuits. We’re talking here, as the gentleman well knows, about citizens who are finding themselves as defendants in foreclosures, and I can’t imagine that people meant to exclude the ability of lawyers to defend people when we’ve got a record of some of these foreclosure packages being abusive.

So I would agree with the gentleman, and if necessary, I would hope we could make that very clear that defending someone who’s being foreclosed upon, when there have been inappropriate practices isn’t what has generally been meant here by a stopping the initiation of civil litigation.

Of course this might make some sense in states where the lender must file a suit to foreclose.  What about the states where the lender can foreclose without suing?  If the House had a problem with the language they should have just fixed rather than the silly exchange on the House floor.  Pathetic.

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Original post:

The media is filled with advice to borrowers faced with foreclosure, and most of the advice is poor.  See examples here and here.  What is usually missing is a suggestion that the borrower seek the advice and assistance of a lawyer knowledgeable in the area.  I admit there are probably not enough lawyers to help everyone; however, if it were me, I would stand in line to speak to an expert to get the whole picture, and develop the best strategy to save my home.  I would start with the National Association of Consumer Advocates (website). Of course, the housing rescue bill could have funding legal assistance, rather than mere “counseling.”

However, lenders are not too excited about people going to see lawyers, so neither is Congress it seems. Lenders, regulators, and lawyers know some of their practices violate the law already.  The Fed Chairman’s statement last week was blunt:

Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower.

Ben S. Bernanke, July 14, 2008 (complete statement here).  

Of course lenders prefer that borrowers call their telemarketers (loan servicers), which is always frustrating and probably not productive. See article here.  Unfortunately, their spin machines and public relations departments have managed to keep lawyers out of the list of alternatives.  The media goes along as they do on so many other subjects.

Not surprisingly, the United States Senate took the lender’s position in their version of the Housing Rescue bill passed two weeks ago (which was authored by the banks, see article):

Section 2305 of the [Senate version of the] bill would provide $30 million to the federal Neighborhood Reinvestment Corporation to distribute as grants to HUD- or NRC-approved counseling organizations, which in turn would hire attorneys to provide foreclosure-related legal assistance to owners of owner-occupied homes. However, the bill states that none of the funds can be used to “provide, obtain, or arrange for” civil litigation on behalf of homeowners.

This section of the bill differs significantly from what the House passed in May. The House version would provide $5 million more in funding, would allow the NRC to make grants directly to legal organizations or attorneys, would allow grantees to help homeowners and tenants threatened by foreclosure, and does not prohibit the money from being used for civil litigation.

Legal Services Corporation, July 16, 2008, article here.

Funding lawyers so long as they don’t take any action?  Lenders want borrowers to beg I presume regardless of their culpability.  Thus, the Senate’s version of the bill is simply offensive in this regard.  The House and Senate are working now to resolve differences so who knows what the answer will be, but let’s hope at the end of the day that borrowers have a little more firepower to stop wrongful foreclosures — even if it will never compare to the huge foreclosure machines the lenders have to perform them.

Filed under: Advice for Borrowers, National Foreclosure News