The California State Bar has prosecuted and disbarred Brian Colombana and Mark Alan Shoemaker. From their press release:
"Colombana, who practiced in Laguna Hills, accepted fees totaling nearly $36,000 from 12 distressed homeowners but did not obtain a single loan modification. Eight of the clients live in states where Colombana is not licensed to practice, and he admitted to engaging “in a scheme to defraud these clients, by exploiting them for personal gain and accepting employment where he was not licensed to practice law.”
Two of Colombana’s clients lost their homes to foreclosure, one had to sell his home at a loss and another cashed in insurance policies to bring the mortgage current and avoid foreclosure.
Colombana affiliated with several loan modification companies, including Loan Negotiators of America, Housing Law Center and Mortgage Relief Law Center. In most cases, he never met his clients. His associates, however, advised them to stop making their mortgage payments. When State Bar Court Judge Richard Honn ordered Colombana to stop practicing in June, he said many homeowners were current but then fell behind. Many “were worse off after retaining (Colombana’s) services, “ Honn said.
In agreeing to disbarment, Colombana admitted that his misconduct “resulted in significant harm to multiple clients (and) . . . constituted a pattern of willfully failing to perform and a habitual disregard for . . . clients’ interests.”
As president of Advocate For Fair Lending (AFFL), Shoemaker promised homeowners “trapped in their mortgages,” that his company could “reduce your payments, interest and balance without refinancing your home.” Clients paid a minimum $1,000 a month for three months for the company’s services.
AFFL promised to audit loan documents, which, Shoemaker said in a stipulation, “had no value to clients.” Demand letters were sent to lenders and when they didn’t respond, AFFL said the client would need an attorney for an additional fee. Shoemaker never acted on any client’s behalf and many clients lost their homes. He also admitted to knowing or being “grossly negligent in not knowing” that AFFL employees who were not lawyers were giving legal advice."
The news is filled with reports of JP Morgan Chase, Ally (GMAC) and politicians like Senator Menedez calling for foreclosure moratoriums. While it is true that Bank of America announced moratoriums in 23 states--California is NOT one of those states. Why not?
Some states, like the 23 states that have the voluntary moratorium, requires a judicial foreclosure--one where the court must be involved.
California is dominated by a non-judicial foreclosure process, which is intended to be a speedier remedy for lenders. However, the California legislature has already extended the previous 4 month time period to conduct the foreclosure by an additional 90 days so it pretty much takes 7 months or more now to actually conduct the foreclosure, which does not include the 3 - 6 months the lender usually gives the delinquent borrower to get current or otherwise workout the loan. So it's already a year or more in California for a borrower to miss payment before the foreclosure actually happens.
I have to ask -- isn't that long enough?
ASSUMPTION #1 I think a lot of politicians make the assumption that many Americans want to keep their homes.
That just hasn't been the case in my practice. I am flooded with calls from people who can't wait to unload their overpriced house and who want to know how to "walk away." Many of them have become overwhelmed with trying to maintain the house or do a loan mod, or have seen their neighborhood change with the surge in vacant REO houses. They want to move but can't. These borrowers would be relieved if the foreclosure would just happen already and the borrowers could rent a place closer to work, shorten their commute and rebuild their credit.
Some of these borrowers recognize that even with the reduced loan payment amount, they could never recover their downpayment out of the house because they do not see the house appreciating enough. Imagine the borrower paid $700k for a 3 bedroom, 2 bath house in San Jose. That same house is now worth $400k.
Say the borrower put $70k down on the house and had a loan for $630k. That borrower now sees that they could wait another decade and may never recover the $70k they put in, but they would have paid $5k in interest payments for a year which would be $60k. Even if the bank reduces interest payments in half, that would be $30k/year in interest payments, and $90k in 3 years which would exceed their initial downpayment. This borrower sees there is no economic reason, no financial benefit to keeping the house. Should they keep throwing good money after bad? Suppose they could rent a house for $2000 per month in a better school district 10 minutes away--now what do you think they would rather do?
Presently something like 90% of borrower are paying their loans...and 10% are in default.
Imagine for every neighborhood in California, there is at 1 in 10 homeowners in default. Imagine half of those homeowners want to walk away.
How would a foreclosure moratorium help this homeowner who wants to walk away?
If the lender would take a deed in lieu or otherwise implement a cash for keys program, perhaps the borrower would be better served by that. Problem is, most of these borrowers have 2nds...and so the the senior lender can't take a deed-in-lieu because it requires a foreclosure sale to wipe out the 2nd and get clean title.
This post is not intended to disparage the homeowners who are genuinely trying to modify their loan and work with their lenders. My point only is that it already takes the lender a year to get to foreclosure in California as it is--if they can't get their act together in a year to work something out with the borrower, a moratorium of a few more months won't help anyone. Perhaps it would be better to legislate the loan mod program timelines themselves than the foreclosure.
ASSUMPTION #2 I think a lot of politicians and consumers make the assumption that many lenders want to foreclose.
WRONG. Many lenders do not want to take back property. They are in the lending business--not the "real estate owned" REO business. Lenders have already been holding back on sales where they could have foreclosed long ago but haven't. This is called "SHADOW INVENTORY". Essentially a moratorium gives institutional lenders time to do what they have already been doing--spinning their wheels and waiting.
As many of you have no doubt have read in the papers, President Obama signed the the massive Dodd-Frank Wall Street Reform and Consumer Protection Act ("Consumer Financial Protection Act of 2010"). One component of the Act “Mortgage Reform and Anti-Predatory Lending Act” which amends Title XIV.
The regulations required by Title XIV must be issued in final form within 18 months of the designated transfer date and must take effect within a year of that. A few of the highlights of Title XIV are:
- NO steering incentives – payments to mortgage originators that vary based on the rate or terms of the loan;
- Mortgage originators are subject to civil liability for failing to comply with the anti-steering provisions;
- No residential mortgage lending without a good faith determination based on verified and documented information that the consumer has the ability to repay the loan;
- Pretty much FULL DOC Loans - Income and assets must be verified by reviewing W-2 forms, tax returns, payroll receipts, or financial records that provide reliable evidence;
- As a defense to foreclosure, a consumer can assert a violation of the anti-steering or ability to repay provisions;
- Prepayment penalties for the most part are prohibited;
- TILA’s “high-cost” mortgage provisions are expanded to include any loan secured by the consumer’s principal dwelling other than a reverse mortgage, including purchase money loans and open-end lines of credit;
- "Higher Risk" Mortgages require the appraiser to physically visit the property (no desktop);
- The cap on TILA civil liability is doubled.