Bank of America Proposes No Payment Plan to Unemployed Homeowners

A concept that has been causing quite a stir around the country is Bank of America’s new proposal to suspend an unemployed homeowner’s mortgage payments for 9 months while the borrower looks for a job. As reported several weeks ago by The Charlotte Observer, Bank of America has applied for regulatory approval of a new program designed to give relief to struggling homeowners who are collecting unemployment benefits. The only problem is the proposal contains a nasty twist. If the homeowner can’t find a job in 9 months, the homeowner would have to give the bank a deed-in-lieu of foreclosure.

But there are other inherent problems with this proposal. First, it would apply only to homeowners who receive unemployment benefits. The self-employed do not qualify for unemployment benefits. Second, homeowners with equity would vehemently oppose handing over a deed to the bank.

Moreover, why would people agree to do a deed-in-lieu of foreclosure when a short sale might be a better option for them? According to Fannie Mae guidelines, a short sale seller may qualify to buy another home in 2 years versus 4 years under a deed-in-lieu. On the other hand, Bank of America is known for not following through on foreclosures. I personally know many sellers in default on Bank of America loans in Sacramento who haven’t made a payment for more than a year, and the bank has not yet auctioned off their homes.

New rule says banks must prove ownership

Foreclosure filings have backed off this year compared to 2009, but it may not be a brightening economy causing the decline.

A new Florida Supreme Court rule requires lenders to verify they are the actual owners of a home before making the initial case for foreclosure.

Show me the “note,” in other words.

The problem is the notes — legal promises from borrowers to repay a debt — have been sold and resold, bundled into securities, scanned into computers, sealed in unknown vaults and lost in various other ways as homes got caught up in the puzzling markets of the real estate boom.

“The original note is something very significant, and they just seem to have lost thousands of them,” said Boca Raton attorney Marlyn Wiener, who handles real estate cases. “Nobody knows where the stuff is.”

The new rule was approved in February with the intention of unclogging the foreclosure courts, which have an estimated statewide backlog of 500,000 cases. It also gives judges power to sanction plaintiffs who make false accusations on the ownership of notes, or missing notes.

Law firms handling the foreclosure overload, sometimes called foreclosure mills, have routinely filed a “lost note” claim with the original default notice, regardless of whether they looked for the note, said Miami-Dade Circuit Court Judge Jennifer Bailey.

The legal move gives lenders a statutory out if the original note truly can’t be located. When asked what efforts were made to find the note, however, such excuses as “searched file cabinet” and “searched fire proof safe” have appeared on several court records.

“It was very confusing. How can you foreclose on the note if the note is lost?” Bailey said. “The judges would be trying to track the note and they’re saying they own it, but don’t have it and don’t know where it is.”

But if a borrower didn’t protest the foreclosure, the cases often sailed through.

Judges were also finding, according to a statewide foreclosure task force that recommended the verification rule, that two different lenders would sometimes file suit on the same note at the same time because it wasn’t clear who the true owner was.

Defense attorneys, too, got keyed in on the lost note strategy, challenging the veracity of a lender’s claim to a home, and further stalling the process.

“There was just an abuse of the lost note statute,” said Scott Hast, an attorney with LaBovick & LaBovick, which has offices in Jupiter and West Palm Beach.

Hast said at least half of his foreclosure defense cases include lender pleas of lost notes. He almost always asks for evidence of the original document.

“They can say it’s a stalling tactic, but how can I not defend my client and seek out every route in his defense?” Hast said.

“Now the courts are saying you have to do your due diligence before filing,” he added.

Anthony DiMarco, executive vice president for government affairs for the Florida Bankers Association, said he doesn’t believe the new rule is causing the slowdown.

He attributes it more to an increase in loan modification workouts between borrowers and banks, and banks’ increased willingness to approve short sales.

It is another hoop for banks to jump through, he acknowledged, but something that was supposed to be happening all along.

Bailey, who was on the foreclosure task force, said the rule wasn’t needed before the real estate boom when home loans were more straightforward and foreclosures fewer.

Think Like A Bank To Get Your REO Offer Approved

Buying REO (Real Estate Owned) homes takes creativity and patience: You must negotiate with banks, your offer may or may not be accepted, and the whole process can take months.

Problem is, many REO investors don’t think like banks. They believe their offer is fair, the property has languished on the market forever, and they can’t understand why the bank isn’t returning their calls.

All of this may all be true, but remember it’s the bank that holds the key to REOs; the buck starts and stops with them. Without accepting your offer, you don’t have a deal. A little homework before you make an REO offer can lead to a lot less headache in the long run.

Your goal is to get the bank to say “yes” to your offer. The more you know about the factors a lender uses to evaluate a REO properties can result in a smoother sales process and, ultimately, bank approval of your offer.

Evaluate Your REO Deals Like A Bank

No matter how much your offer is, the bank is going to always think the property is worth more. It’s that simple. Lenders agree to an REO based on a percentage of what banks believe is the “as is” value of the property. Every lender has a different approval percentage, and these figures can change.

Your goal is to offer just enough so that the lender quickly approves your offer; nothing more and nothing less. Knowing the approval percentage is half the battle; the other part involves the as is property value in the lender’s eyes.

This is determined by the broker’s price opinion (BPO), which involves three comparable sales, three active listings, local market conditions and other evaluations. The BPO is typically conducted by a real estate agent and also includes an interior and exterior “drive by.” Many lenders also use appraisals.

Bank Evaluations Are Also Important In REOs

The bank doesn’t just rely on outside evaluations; internal evaluations from their REO or special assets department also weight heavily in the decision making. The valuation department can assess a property’s worth, as well as use tools that real estate professionals use.

Finally, the lender uses the BPO, appraisals and internal evaluations to determine the property value and base their decision on a percentage of that number. Sometimes, the bank’s loss mitigation rep will tell you the number.

By thinking like a bank, you can offer enough so that the bank says “yes” to your offer.