The Hamptons’ Story
In preparation for a deposition in the Hamptons’ case recently, I had an occasion to review the Federal Housing Administration (FHA) servicer guidelines governing how banks, who are actually only acting as servicers, should treat homeowners with troubled FHA-insured loans. Those guidelines state:
“Foreclosure should be considered only as a last resort and shall not be initiated until all other relief options have been exhausted.”
Similar language is contained in the Fannie Mae and Freddie Mac servicing guidelines.
Given that Fannie Mae, Freddie Mac and FHA, own or insure well over 50% of the Country’s mortgages, it is safe to say that the above philosophy applies to millions of mortgages around the Nation. However, it seems there is a serious disconnect between the written policy and the reality of everyday life. This is exemplified by the Hamptons’ case whereby their Bank has done everything but it could to consider foreclosure as the first resort, rather than the last.
Let’s start from the beginning of a long line of defenses to foreclosure which the Hamptons brought to us with their foreclosure complaint. First, there were serious discrepancies in the versions of the promissory note which the foreclosing Bank produced. This led to the ultimate question whether the Bank is the proper party entitled to foreclose. Even more importantly, numerous “equitable” defenses to foreclosure readily appeared. Among those is the fact that their Bank did not send them the proper notice informing them of their right to reinstate the loan before filing foreclosure, as required under the terms of their mortgage.
In addition, the Bank did not offer, in writing, a face-to-face meeting with the Hamptons’ before filing the foreclosure action. This is an absolute necessary precondition before filing foreclosure on FHA-insured loans, a precondition requiring dismissal of the foreclosure if it is not met. Further, the Hamptons’ had proof that they offered to pay $4,000, the amount their Bank claimed they were arrears, before the foreclosure was filed. That amount, if accepted, would have caught them up in full and have avoided foreclosure altogether. Finally, and maybe most importantly, the “silver bullet” defense, HAMP (Home Affordable Modification Program), was available to the Hamptons.
HAMP requires that a homeowner’s mortgage expense, including principal, interest, taxes and insurance, should not exceed 31% of the homeowner’s gross household income. In the Hamptons’ case, their mortgage expense was well above 31%. In other words, they qualified for HAMP, yet their Bank denied them mortgage relief. The bottom line is that, in the Hamptons’ case, foreclosure was not the last report, but rather the first. We will use these defenses effectively in defending the Hamptons’ home. However, the lesson in their Story for millions of Americans trying to save their homes from foreclosure is that it is often necessary to point out the transgressions of the bank, showing that it has violated many rules and regulations in its rush to foreclose, and thus violated has the homeowner’s rights.
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Kate Eyster and Lauren McGookey contributed to this article.
Copyright 2013 Daniel L. McGookey