The

National Mortgage Settlement: What Every Consumer Bankruptcy Lawyer Needs To Know About It
Presented by:
John Rao, Esq., National Consumer Law Center, NACBA Vice President, and Professor Katherine Porter, Univ. of California Irvine School of Law; California Monitor

Thursday,September27,2012

National Mortgage Settlement

PartiestotheDeal
Government:USDOJ(includingUSTrusteeProgram),HUD,US Treasury,AttorneysGeneral(exceptOK) 5Servicers:
BankofAmerica WellsFargo JPMorganChase Citibank GMAC(akaAlly).

TimingofSettlementRelief
March1:Loanmodificationscanreceivecredit October3:Allservicingstandardsmustbeimplemented

Servicing Standards for Bankruptcy

National Mortgage Settlement

Accuracy of Filed Documents

Allpleadings,proofsofclaim,affidavits,sworn statements,anddeclarationsfiledinjudicialforeclosure orbankruptcycases,andinnoticesofdefaultorsalein nonjudicialforeclosures,mustbe: accurateandcompleteandaresupportedby competentandreliableevidence Doesthisimposeastricterstandardthan BankruptcyRule9011?

Accuracy of Filed Documents

Ifproofofclaimorstayreliefmotionincasependingbefore Settlementcontainsmateriallyinaccurateinformation, servicermust:
fileanamendedclaimormotion,atservicersexpense, within30daysofacquiringknowledgeoftheinaccuracy notcollectanyattorneyfeesorotherchargesfor preparationorsubmissionofproofofclaimormotionfor reliefthatislaterwithdrawnordeniedasaresultofa substantialmisstatementastotheamountdue

Affidavits, Sworn Statements, and Declarations Must:

Bebasedonpersonalknowledgeorrelianceonbusiness recordsasallowedunderFRE Notcontainfalseorunsubstantiatedinformation,but statementsbasedoninformationandbeliefareallowed ifsostated Accuratelyidentifyaffiant/declarantbyname,employer, andtitle BesignedBYHANDanddated(signaturestampsandother mechanicalsignaturesprohibitedexceptforelectronicfiling)

Proofs of Claim
Servicersrequiredtoattachtoproofofclaimthe LoanDocuments,whichinclude:
originalorduplicateofnote,includingallindorsements; acopyofanymortgageordeedoftrust (including,ifapplicable,evidenceofrecordation inapplicablelandrecords);and copiesofanyassignmentsofmortgageordeedoftrust requiredtodemonstratetherighttoenforcethe borrowersnoteunderapplicablestatelaw

Proofs of Claim
Servicersmustalsoattachtoproofofclaim:
affidavitifnotehasbeenlostordestroyed statementsettingforthbasisforassertingthat applicablepartyhasrighttoforeclose musthaveprocedurestoensureserviceror foreclosingentityhasdocumentedenforceable interestinnoteandmortgageunderstatelaw,or isotherwiseaproperpartytotheforeclosureaction OfficialForm10(AttachmentA)asrequiredby BankruptcyRule3001(c)(2)(C) mustcomplywithallotherrequirements inRule3001

Bankruptcy Mortgage Rules

Settlementimposessanctionseparatefromthatavailable underBankruptcyRule3002.1(i)
ifservicerfailstoprovidepaymentchangenoticeasrequired byRule3002.1(b),servicershallwaiveandnotcollectany latechargeorotherfeesimposedsolelyasaresultofthe borrowersfailuretotimelymakethechangedpayment Ifservicerfailstotimelyprovidenoticeoffees,asrequired by3002.1(c)andRule3002.1(g),thefeesaredeemedwaived andmaynotbecollectedfromtheborrower
exceptionforindependentcharges feespaidbyservicer thatareauthorizedbyborroweroradvancedbyservicer fortaxes,HOAfees,liensorinsurance

Stay Relief Motions

InChapter13cases,themotionpapersmust:
IncludeLoanDocumentsorstatethattheyareattached toafiledproofofclaim Statethebasisforthemovingpartysrighttoforeclose Disclosewhetherdebtorisbeingevaluatedforaloss mitigationoption Disclosetermsofanytrialperiodorpermanentloan modificationplanpendingattimeofmotion

Stay Relief Motions

InChapter13cases,themotionshallhaveattachedan affidavit,swornstatementordeclarationsettingforth:
whetherthereareanyprepetitionorpostpetition defaults ifdefault,adescriptionofanydefault,andadetailed itemizationofallamountsowed,theprepetitionand postpetitionarrearages,andeachfeeorchargeapplied tosuchprepetitionamountorpostpetitionamount;and anuptodatestatementofallamountsclaimedandthe amountnecessarytocureanydefault

Payment Application in Ch. 13 Cases

Servicersmustensurepromptandproperapplicationof paymentsmadeonprepetitionarrearageandpostpetition paymentamounts Debtoristobetreatedasbeingcurrentsolongasmaking paymentsinaccordancewithconfirmedplanandanylater effectivepaymentchangenotices Throughoutthecase,servicerisrequiredtoupdateitsrecords toreflectpaymentsmadeduringcaseandwaiverofanyfeeas requiredunderSettlement

Loan Modifications for Bankruptcy Debtors

National Mortgage Settlement

Principal Reduction Eligibility Criteria

IndefaultorimminentriskofdefaultattimeofSettlement Underwater Ownershipofloan NoFannie/FreddieorFHA/VA WellsFargo,Citi,&GMAC servicerownedloan BankofAmerica&Chase servicerownedloans investorownedloanswithdelegatedauthority

First Lien Principal Reductions

BankofAmerica
Mandatorysolicitationofcertaingroupofborrowers (60daysdefaultasof1/31/12,andothercriteria) Borrowersinbankruptcywillbesolicitedthroughtheir counseliftheyarerepresented Watchforthesesolicitationsandnotifyyourclients

WellsFargo,Chase,Citi,andAlly/GMAC
Notsubjecttosamesolicitationrequirementsas BankofAmerica Policiesonsolicitingborrowersinbankruptcy notyetdisclosed.

Second Lien Principal Reductions

BankofAmerica
Sendingsolicitationstoeligibleborrowers Completeforgivenessofloan Optoutoffersthatforgiveliensofnonresponders Borrowersinbankruptcyarebeingsolicited,including: Debtorswithconfirmedplanstostripoffsecondliens Debtorswithentereddischargeorders

WellsFargo,Chase,Citi,andAlly/GMAC
Secondlienmodificationprogramsvarybutprimarily occurwhenafirstlienismodifiedunderSettlement bythemoranothersettlementbank

Refinance Program
Mandatorysolicitationrefinanceprogramforservicer ownedfirstliensofCURRENTunderwaterborrowers. Refinanceisreallystreamlinedmodificationtoreduce interestrate. Borrowerswhoarecurrentlyinbankruptcyorwhohave beeninbankruptcyduringthelast24monthsareNOT eligibleforthisprogram andcannotapply.

Enforcement
National Mortgage Settlement

Enforceable by Private Parties?

Notdirectlyenforceablebyborrowers/debtors Failuretocomplywiththestandardsmayprovideadditional supportforrequestbydebtorsfor:
sanctionsinadditiontothoseavailableunder BankruptcyRules3001(c)(2)(D)andRule3002.1(i) denialofstayreliefforfailuretoshowcause undersection363(d)(1) disallowanceofclaimundersection502(b)(1)

Enforceable by Private Parties?

Violationssupportclaimsthatnoncomplyingservicers areviolatingaclearindustrystandard,givingrisetoclaims basedon:
stateUDAPlaws dutyofgoodfaithandfairdealing SeeWigodv.WellsFargoBank,N.A.,673F.3d547 (7thCir.2012);InreHinson,2012WL1354807 (Bankr.E.D.N.C.Apr17,2012)

Courtsmayapplyequitableprinciplestodenyrelief requestedbyservicersthatrelatestoviolationsofstandards

Enforcement: Metrics
Metricsmeasurecompliancewithservicingstandards Translateservicingstandardsintodefinedactivities thatwillbemeasuredortested
Eachmetrichasanacceptableerrorrate(often5%) todetermineifpenaltycanbeimposed

Penaltiesof$1millionforfirstviolation BanksInternalReviewGroupdoesinitialworkon servicing;auditedbyprofessionalfirmhiredby NationalMonitor

Enforcement: Credits
Creditsmeasuredollarstoward$17billion Settlementrelief Differentamountsofcreditfordifferentactivities
Principalreductions Refinances Shortsales Antiblightmeasures Andmanymore

Differentcreditamountsfordifferentactivities
Example1:firstlienprincipalreductionofservicerownedloanis
$1=$1creditbutifinvestorowned$1=$0.40.

Example2:$0.10onthedollarcreditforforgivingsecondliensthat
areover180daysdelinquent

Where to Report Problems

Nationwide:
NACBAofcourse! TheUSTrusteeprogram
ApartytoSettlement OntheMonitoringCommittee

JosephSmith,theNationalMonitor

Where to Report Problems

Where to Report Problems

InCalifornia: EmailtheCaliforniaMonitorProgram:

CAMonitor@doj.ca.gov
Weworkindividualcasestohelppeople Otherstateswithinterestingorprogressivehelpsystemsfor Settlementinclude:
IllinoisAGinhouseloanmodificationunit MassachusettsSpecialCounselforSettlement Arizonacobrandingpilot