DEAR BENNY: I missed two payments on my mortgage last fall due to the replacement of an HVAC system. I called the bank and asked for some help. They told me that I did not qualify. I made full payments in December and January. My February payment was returned and approximately one week later I received a notice from a law firm advising that my house would be foreclosed upon. Although I have asked, I have never received a bank statement detailing my payment history.
I sent a note to the law firm disputing the debt, and requested a copy of the original loan along with the amount past due. Does the bank have to produce the original document prior to a foreclosure sale? The law firm seemed to feel that this was a non-issue. –Preston
DEAR PRESTON: It seems to me that you have three issues — possible defenses — to the pending foreclosure. First, the bank accepted two of your payments, but returned the third. You could argue that the bank is legally barred — lawyers call it estopped — from now claiming that you are in default.
Second, the bank’s attorney may be in violation of the Fair Debt Collection Practices Act. When you first receive a letter from a collection agent (including attorneys) you have the right to dispute the validity of the debt, and the agent is legally obligated to provide you proof of your delinquency.
Third, in many states, if a lender wants to foreclose on residential property, it must be in possession of the actual original note. In the past, many loan documents were securitized — i.e., bundled together and sold to investors all over the world — and as a result, many lenders cannot locate the original promissory note that you signed.
Some judges throughout the country have taken the position that if the lender does not produce the original document, the lender cannot take legal action against the homeowner.
I suggest you contact a local attorney to review all these issues. You may have a case against both the lender as well as the law firm.
DEAR BENNY: I have what people tell me is a sterling credit rating, with my lowest score being 809. We are attempting to refinance our home loan into a conforming loan of $374,000; our home was recently appraised at $890,000. Our outstanding home loan, which is the only debt my wife and I carry, is about $368,000. Our annual income is between $165,000 and $190,000 depending upon bonuses and investment incomes. We have no auto loans or outstanding credit-card balances.
My mortgage broker informed me that we had locked in a rate of 4.25 percent for this loan at 1.125 points. This was so attractive that I actually did some checking around to make sure this was a legitimate broker; everything I checked seemed fine: no outstanding or recent lawsuits, etc. Other brokers were quoting me rates at that time of between 4.375 percent and 4.625 percent.
The loan application paperwork was submitted and shortly thereafter I was told that the loan was submitted to the investor for approval. Then the problems seemed to start. First, there was a problem with the appraisal that supposedly took several weeks to correct. Then the broker informed me that it had gotten stuck and he was not notified until two weeks later. By this time I was asking him if our lock was still in place. He informed me that the loan was "approved" and that it was now moving through "underwriting" and would be ready for sign-off in as little as a week.
After a couple of requests for additional data, such as copies of our driver’s licenses, he kept assuring me that the loan was moving along the "fast track" now and would be ready to go real soon. Then today when I contacted him again, he informed me that the loan was all complete and ready to go.
But then he told me that the loan lock had been lost due to the delays and that my new loan would be at rates that are current today rather than what was locked in. Needless to say, those rates are substantially higher now than they were then.
Do I have any recourse here? Shouldn’t he at least have informed me that the loan lock was about to expire? I now understand that it lasted for only 30 days. It would have been better had he warned me before it expired.
Also, does a loan broker have any responsibility to process a loan in a reasonable time? I am out the cost of the appraisal but fortunately nothing else. However, I have lost a substantial portion of the savings I hoped to achieve with the rates that were current back in late April. –Jeffrey
DEAR JEFFREY: Did you sign a document called a "rate-lock" or "rate commitment" with your lender? If you did, you should have been advised that the lock was good for only 30 days. If you complain to the lender (which you should do) I am sure its defense will be, "Well, you signed the agreement and knew that the rate would expire."
But that, of course, does not excuse the broker from any negligence on his part. The Federal Reserve Board has published a very helpful document entitled "A Consumer’s Guide to Mortgage Lock-ins," accessible at www.federalreserve.gov/pubs/lockins.
According to the publication, "If you believe that the lapse was due to delays caused by the lender or someone else involved in the loan process, you should try first to reach a mutually satisfactory agreement with the lender. If that effort fails, consider writing to the appropriate state or federal regulatory agency."
At the end of the publication, there is a list of some of these agencies.
DEAR BENNY: We have applied for a refinance mortgage to take advantage of lower interest rates. We applied and when the home was appraised, the bank reduced our accompanying line of credit based on the new asset/debt ratio, which it based on a reduced assessment. We have a great credit rating and an OK mortgage interest rate. Should we seek an escape from this application and remain with our current interest rate?
If we were to sell in the future, we, of course, would like to sell at what we originally paid for the property. Is this recent bank appraisal confidential information and used by the bank for financing only? Will it be able to influence our home’s market value should we sell in the future? –Mic
DEAR MIC: Out of curiosity, why do you want to sell only at the price you originally paid? Hopefully, the real estate market will eventually get back to normal, and property values will start to increase at least 3-5 percent per year.
The bank appraisal has nothing to do with the price you will ask when you put the house up for sale. I am sure that your county also has an assessment value, on which it bases your annual real estate tax.
But, as we all know, the best test of market value is what a buyer is willing to pay and what the seller is willing to accept.
You can price your house for whatever you believe is a good price. That, of course, does not mean that you will get that price. Real estate agents may be reluctant to take your listing if your valuation is off the chart, but there is nothing stopping you from trying to sell at your price.
Your buyers will determine the true value. If you get a low offer from a buyer, you can always counter with a higher number. Everything in real estate is negotiable, and usually buyers and sellers reach an acceptable compromise.
DEAR BENNY: We plan to enter into a contract to buy a condominium within the next month or so. Can we still take advantage of the $8,000 tax credit? –Mary
DEAR MARY: Unfortunately, unless Congress extends the law — which is highly unlikely in this political climate — in order to claim that credit, you had to enter into a binding real estate contract by April 30, 2010, and physically close (go to escrow) before July 1, 2010.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@sandbox.inman.com.
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