Circuit Court of Cook County Mortgage
Foreclosure Mediation Program
Homeowner’s Attorney Training
Patricia Nelson
Director, Foreclosure Mediation Program
CVLS Contact Information
Patricia Nelson, Director of Foreclosure Mediation Program
312-332-5539; pnelson@cvls.org
Natalie Weidemier, Attorney Support Supervisor
312-332-1687; nweidemier@cvls.org
Rebekah Rashidfarokhi, Staff Attorney
312-332-7399; rrashidfarokhi@cvls.org
Shirley Chiu, Staff Attorney
312-332-8239; schiu@cvls.org
Daniel Santrella, Foreclosure Mediation Administrator
312-332-7546; dsantrella@cvls.org
Chicago Volunteer Legal
Services
CVLS
– Funded in 1964
– Over 2,900 volunteers
– In 2009, CVLS provided free legal services to 17,427 low income
people in the Chicago area
– Work from a small staff – leverage resources with volunteers
model
– Our job is to support YOU so that you have a good volunteer
experience and in turn our clients get excellent quality
representation
2 Possible Components to CVLS
assistance for homeowners
1.
Mediation
- CVLS is automatically appointed by the court, and we accept
all cases
- no income caps
- just for mediation – no court or litigation
2. Access to Justice
- Court appointed by the Chancery Division
- CVLS income caps apply – we do not accept every case
- Full legal representation for litigation
- Possible representation for foreclosure cases that do not settle
in mediation
General Program Info
- Program Participants
-
Circuit Court of Cook County
Center for Conflict Resolution (CCR)
Chicago Legal Clinic (CLC)
Illinois Housing Development Authority (IHDA)
- Funded by Cook County Board through the
Chicago Bar Foundation
- Began with cases filed after April 11, 2010
- Can be granted for cases filed prior but borrower
won’t automatically have the information to enter
the program
Who is eligible to participate in
the program?
- No income caps
- Owner must live in the property
- Single family home or building with 4 or
less units
Court Process for Mediation
• Opt in program – not automatic – tries to ensure you have engaged
clients
• Summons w/ Hotline Number: 877-895-2444
• HUD Counselor – provided by IHDA
- Retention v Relinquishment Counseling
- Assist with Modification Applications
• Volunteer Attorney – provided by CLC
- Screens for basic legal issues
- Assists in filing Appearance and Answer
- Motion for Mediation or Access to Justice Attorney – homeowner
presents motion themselves – at judge’s discretion
Court Process for Mediation
• Mediation Referral Order
- Mediation issues are not limited by Order
- Plaintiff and Client contact information
- Post-Mediation status date – you are not required to attend – talk to
your support attorney if you think it’s necessary
• Notice of Mediation from CCR
- Dates & Times of Mediations
- 45 days before mediation – plaintiff to send payoff and
reinstatement, and status of current loss mitigation
- 10 Day Summary & Updated Financials
Default Foreclosure Timeline
January –
March
Pre-Complaint: 3 missed
payments
April
Complaint: Filed
Late April
Jurisdiction: Service
June
Case Mgmt Date: No
Appearance filed
July
Motion for Default
Judgment entered
November
December
Sale: No notice if default
Sale Confirmed: OP
stayed for 30 days
Contested Foreclosure Timeline
January –
March
Pre-Complaint: 3 missed
payments
April
Complaint: Filed
Late April
Jurisdiction: Service
June
Case Mgmt Date: No
Appearance filed
July
Motion for Default
Judgment: Borrower
appears and requests
time to file Appearance &
Answer. Judge grants 30
days
Contested Foreclosure Timeline
August
Borrower files
Appearance & Answer
Late August
Borrower issues
Discovery to Lender
Late April
Jurisdiction: Service
November
Lender partially responds
to Discovery
December
Borrower sends 201(k)
letter
January,
2011
Lender complies w/
Discovery
Contested Foreclosure Timeline
February
Motion for Summary
Judgment: Borrower
requests Briefing
Schedule (28 days to
Respond, 14 to Reply)
and Hearing Date
May
Summary Judgment
entered – sale cannot
take place for 90 days
September
Sale
October
Confirmation of Sale, OP
stayed for 30 days
November
Borrower must relinquish
possession of property
What are we mediating?
• 2 categories of resolution
– Retention
– Relinquishment
– Ensuring adherence to government programs
– Ensuring an end to endless submission of documents
- Ensuring fair treatment and no bullying
Retention Options
Borrower Remains in the Property
•
•
•
•
•
HAMP Loan Modification
Non-HAMP Loan Modification
Forbearance
Repayment
Chapter 13 Bankruptcy
What is HAMP?
• Home Affordable Modification Program (Making Home
Affordable - MHA)
• Servicers get monetary incentives for modifications
made under the plan
• Participating servicers supposed to screen everybody,
subject only to investor limits
• Those servicers receiving ongoing TARP money must
modify loans under HAMP
Where is there Guidance?
• No regulations or statute
• Guidance
– Previously - Non-Fannie and Freddie: Supplemental Directives
(SD), Model Forms & FAQs (hmpadmin.com)
– Now – MHA Handbook (found at hmpadmin.com)
• Supercedes SD’s and FAQ’s
• Except – provisions not incorporated in handbook – SD still applies
– Fannie Mae: Announcements (efanniemae.com)
– Freddie Mac: Bulletins (freddiemac.com)
–
–
FHA: previously - Mortgagee letters
(hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm)
Now – incorporated in MHA Handbook
Other Helpful Resources
•
•
•
Websites:
– www.makinghomeaffordable.gov
– www.financialstability.gov
Binder of MHA handbook and FHA mortgagee letters
at mediation centers
If Binder is not in the room and you need it in
mediation, ask the receptionist – they are removed
every night
HAMP Basic Concepts
• Payments reduced to 31% of gross monthly income – by
reducing the interest rate, extending the term, and
possibly forbearing or forgiving principal
• Modification results in a positive Net Present Value
(NPV) for investors
• Investors and servicers get financial incentives from
government
• Trial modification followed by permanent modification
Three Step Process
• Step 1 - Loan must be eligible
• Step 2 - Borrower must be eligible
• Step 3 - Borrower must qualify
– Waterfall Analysis
– NPV test
Step 1 – Loan Eligibility
• All Fannie Mae/Freddie Mac (GSE) loans covered – HAMP is
mandatory
– Search engines online to see if either owns the loan
• www.FannieMae.com
• www.FreddieMac.com
• Non-GSE loans – servicers, not investors choose to participate
– List with contact information available online http://makinghomeaffordable.gov/contact_servicer.html.
– Applies to operating subsidiaries/affiliates
– Servicer Participation Agreement (SPA) available online –
www.financialstability.gov
Step 1 – Loan Eligibility
Can Investors Forbid HAMP mods?
– If investor forbids modification, servicer must request waiver
– Supp. Dir. 09-01: servicers required to use “reasonable efforts” to
get approval
- Supp. Dir. 10-02: servicers required to provide list to Treasury of
investors not participating in HAMP and to contact each in
writing at least 1x to encourage participation
- Push back on this issue – insist on seeing something in writing
that the servicer did towards reasonable efforts
- Ask for Pool ID number – it is possible to look at investor’s
pooling and service agreement online – SEC website (difficult to
navigate)
- Possible confidentiality issues
- Option to escalate – see page 36 of HAMP Manual
Step 2 – Borrower Eligibility
Income Eligibility
• Current payment including PITIA
(principal, interest, taxes, insurance,
association fees) must be greater than
31% of monthly gross income
• Servicers who deny because current
payment is <31% of gross income may not
have included association fees
Step 2 – Borrower Eligibility
Borrower in Bankruptcy
• As of June 1, 2010 – are eligible for HAMP
– Borrowers in an active chapter 7 or chapter 13
bankruptcy case must be considered for HAMP if the
borrower, borrower’s counsel or bankruptcy trustee
submits a request to the servicer.
– Borrowers may not be denied a permanent HAMP
modification on the basis of a bankruptcy filing.
Supp. Dir. 10-02
• BUT – filing BK puts an automatic stay on the mediation
Step 2 – Borrower Eligibility
Loan Eligibility
• Loan must be:
– First lien originated on or before January 1, 2009
• Home equity loans eligible if loan is first or only lien on
property
– Unpaid principal balance cap
• 1 unit: $729,450
• 2 unit: $934,200
• 3 unit: $1,129,250
• 4 unit: $1,403,400
– Not previously modified under HAMP
Step 3 – Borrower Qualification
Target Payment = 31% of Gross Income
•
Income – what’s included?
– Can include income for non-borrower household members.
– Net income gets multiplied by 125%
– Rental income gets multiplied by 75%
– unemployment income is not eligible
– Must be able to document monthly income
– If self-employed, profit and loss statement without other documentation suffices
– Borrower DOES NOT have to disclose child support or alimony
•
There is no income amount that is barred. However, a borrower’s income may be too
low or too high for a HAMP mod
– Too low and the borrower will fail the NPV test
– Too high and current payment may already be at or under 31%
Step 3 – Borrower Qualification
Waterfall Analysis
• Target payment – PITIA 31% of gross monthly income
• Waterfall Analysis
– Capitalize arrearage
– Reduce interest rate – as low as 2%
– Amortization term extended to 40 years
– Principal forbearance
– Alternative principal forgiveness if loan to value (LTV) is >115%
• Servicers will only take steps necessary to get payment to target
amount.
Step 3 – Borrower Qualification
Waterfall Analysis – Capitalizing Arrearages
• Principal debt will increase– may result in a higher payment than before
the default
• Capitalized arrearage includes:
– Past due principal and interest
– Escrow deficiencies/advances, though doesn’t have to be –
lender will have paid taxes
– Foreclosure costs
– Servicing fees: property inspections, credit report fee
• CANNOT include:
– Late fees: unpaid fees will be waived
– Additional modification fees: no charge for HAMP.
Step 3 – Borrower Qualification
Waterfall Analysis – Interest Rate Reduction
• Reduced to as low as 2% for 5 years (to get to
31%)
• Can go lower, but incentives only paid down to
2%
• Increase at 1% after 5 years to lower of
– Freddie Mac rate
– Interest rate cap in note
• Once rate increases to cap, fixed for life of loan.
Step 3 – Borrower Qualification
Waterfall Analysis – Increase Term of Loan
• If interest rate reduced to 2% and payment
still not equal to or less than 31% of gross
income, then increase term of loan to 40
years
Step 3 – Borrower Qualification
Waterfall Analysis – Principal Forbearance or Reduction
• Forbearance
– Limited to 30% of unpaid principal balance or 100%
LTV
– Treated as non-interest bearing balloon payment
• Reduction:
– Required as of October 1, 2010
– Reduce principal if LTV is >115%
Step 3 – Borrower Qualification
Net Present Value (NPV) Test
• Measures the benefit to the investor of a loan mod
– Not servicer
– Not borrower
• Weighs
– Value of current payments
– Value and probability of Foreclosure
– Value of payments under a loan mod
– Probability of another foreclosure after loan mod
• Positive NPV test= HAMP loan mod
• Negative NPV test—still possible to have a loan mod, but unlikely to
qualify for HAMP.
Step 3 – Borrower Qualification
Net Present Value (NPV) Test
• HAMP NPV test not public
– In mediation, demand inputs – limited to some inputs
– If litigating, should demand entire NPV in discovery
– FDIC has comparable model online at FDIC.gov.
• Servicers can generate their own NPV and use their own
numbers for required inputs
Step 3 – Borrower Qualification
Reasons for Failing NPV Test
• Current income stream on loan is high
– Small likelihood of default (high FICO, low LTV, current, low DTI)
• Foreclosure looks attractive
– High home value
– Chance of cure is high
• Mod looks risky
– Declining home prices
– High chance of redefault
• Mod doesn’t generate enough income
– Borrower’s income is so low that at 31%, the mod doesn’t
generate enough income
Applying for HAMP
•
“Should” be done by HUD counselor, and you should receive a complete
package with your case
–
–
–
–
but some clients go to HUD counselors outside of the program
Some counselors aren’t as reliable as others (some are great)
Make contact with the HUD counselor one of the FIRST things you do
Ask plaintiff’s counsel if any other docs are needed the SECOND thing you do
•
Submission of “Initial Package” triggers servicer’s duty to review for HAMP
•
Regardless of the quality of the HAMP application from the counselor, you
will need to send
– 30 days most recent paystubs
– 2 months most recent bank statements
Applying for HAMP
What needs to be in a HAMP application
•
•
•
•
•
•
Request for Modification (RMA)
Separate free form hardship letter, signed and dated by all borrowers
4506T – tax certification form
Last 2 years tax returns that have been filed
Dodd-Frank certificate
Proof of income
– 30 days most recent paystubs
– Lease, contribution letter, proof of deposits in bank statements
– Profit and loss statement for self-employed (don’t need back up docs)
•
•
•
•
Separate list of expenses – signed and dated
Sometimes a servicer specific application (ask plaintiff’s counsel)
Last 2 months bank statements – all pages, even if intentionally left blank,
for all accounts
Recent utility bill – for proof of occupancy
• Forms are available at makinghomeaffordable.gov
Servicer Response Time
• 10 business days from receipt of Initial Package to
acknowledge borrower’s request in writing.
• 30 calendar days from receipt to approve, deny, or
request more information in writing
• If denied, 10 business days from determination to notify
of denial in writing.
• Doesn’t happen in real life – but can point it out in
mediation
Incomplete Information
•
If more information needed:
–
Servicer must send written request to borrower that identifies
specific information needed
–
Letter must allow 30 days to provide missing documents.
–
If still not returned, servicer must send 2nd letter giving
borrower 15 days to provide documents before denying
application.
–
If still not provided, servicer will send Denial Notice that cites
denial due to insufficient information to determine eligibility
–
If requested in mediation – ALL documents should flow
through you directly to plaintiff’s attorney – do not accept
a request to send directly to the servicer
If Approved
• Trial Period Plan
– At least 3 months trial at proposed modified payment
– Arrears will accrue during trial. Payments are held in suspense
and only credited when equal to full monthly payment under
note.
– Will be reported to credit bureaus as either in default or making
payments under a plan
• Will be converted to permanent modification upon completion of trial
modification – additional docs may be needed
• If fails trial period: no further HAMP mod. “1 bite at the apple.”
If Denied
• Written Notice must be sent to borrower within
10 days of determining HAMP modification
denied.
• Must state why homeowner was denied
• Must describe alternative loss mitigation options
• If due to NPV, must offer opportunity to request
NPV inputs
If Denied
• If denied based on NPV: notice will allow opportunity to
request certain inputs (e.g. income, UPB) in 30 days
(sale stayed)
• Servicer must provide inputs w/in 10 days of request
• Must review new borrower data, recalculate if likely to
change outcome
FHA Loans
• HAMP considered last modification tool for FHA loans, rather than
used as first option like Fannie/Freddie/non-GSE.
• Incentive payments now available for FHA-HAMP mods
– Includes principal reduction payments to borrowers
• Mortgagee letters available at
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cf
m
• Mortgagee Letter 09-23 sets forth basic outline
• Be aware of other modification options available for FHA mortgages
– See, e.g., Mortgagee Letter 09-35 (requiring that modifications
reduce the base rate to the current market rate)
Retention Option
Non HAMP, Traditional, In House Loan Modification
- Same Terms to Modify: Interest, Term, Principal
- Wise to use same Income Target: 31% of Gross… but
can vary
- Need to evaluate net income and actual expenses to
determine how much borrower can actually afford to
pay
- Down payment: 40-50% of Arrearage
- Forbear Arrearage as Balloon Payment
Retention Option
Forbearance
- Lender agrees to accept no (or reduced) payments for a specified
period of time
- Unemployed borrowers or those experiencing a temporary, finite
loss of income
- An option in mediation if all efforts towards loan modification fail
and borrower wants to continue to try
- Be sure to set time lines of what documents are required at the
end of the forbearance to then be considered for a loan
modification
Retention Option
Repayment Plan and Reinstatement
– Repayment Plan
- Borrower pays arrearages (missed payments, attorney’s fees,
lender’s costs, taxes paid on their behalf) over a period of time,
usually 6-12 months
- Borrower must make regular mortgage payment in addition to
repayment amount
- Unrealistic for most borrowers
- Reinstatement
- borrower pays full arrearages – including missed payments,
attorney’s fees, lender’s costs, taxes paid on their behalf)
- realistic for some borrowers who borrow the money from 401(k)
Retention Option
Chapter 13 Bankruptcy
- Stays foreclosure if filed before the sale
- Borrower’s debt, including mortgage arrearages,
consolidated and borrower makes monthly payment to
trustee
- Borrower must make regular mortgage payment as well
- Last alternative – negative impact on credit
- Talk to your support attorney if this is an option
- CVLS has volunteer attorneys who can give advice and
represent on this issue
Relinquishment Options
Borrower Surrenders Property
•
•
•
•
Deed in Lieu of Foreclosure
Consent Judgment
Short Sale
Relocation Assistance (“Cash for Keys”)
Relinquishment Option
Deed in Lieu of Foreclosure (DIL)
- Borrower deeds property to lender and lender agrees
not to pursue personal deficiency
- Why? Credit score, cannot reinstate, no equity
- Why not? Cook County judges rarely grant personal
deficiency judgments, less time in the property, credit
still negatively impacted
- Title issues – lender takes property subject to other liens
as opposed to foreclosure that wipes them out
Relinquishment Option
Consent Judgment
- Similar to DIL except 2nd mortgage on property
– 2nd mortgagee bound if proper notice & does not object
– 2nd mortgagee can later file a collection case based on
the Note even though mortgage foreclosed
Relinquishment Option
Short Sale
- Sale price does not cover outstanding mortgage
- Lender approval required
- Amount forgiven IS taxable if investment property
- Need to get lender’s approval to waive personal
deficiency – not automatic
Relinquishment Option
HAMP Related Program HAFA
• Homeowners can get $3000 for completing a short-sale
or DIL
• Must meet basic HAMP eligibility requirements
– No NPV test
• Must be evaluated for HAMP and fail or request HAFA
– If borrower requests HAFA, they must be informed of
HAMP and given 14 days to consider pursuing HAMP
• Deficiency must be waived
• Borrowers may be required to make monthly payments
of 31% of income
Supp. Dir. 09-09
Relinquishment Option
HAMP Related Program HAFA
• Minimum net proceeds defined in advance
• Minimum 120 days to sell the property
• Borrower supposed to clear subordinate liens; servicer
may authorize up to a total of $6K from sale proceeds
paid to subordinate lienholders, no more than 6% of the
subordinate lien’s outstanding principal balance
• Servicer may require borrower to list house first, before
entering into a deed-in-lieu
Relinquishment Option
Relocation Assistance (“Cash for Keys”)
Relocation Assistance (“Cash for Keys”)
- DIL variation
- Lender pays Borrower to timely vacate home w/out
destroying property
- Lender avoids incurring eviction costs
Relinquishment
Factors to Consider for Any Option
- compare length of time in the home with
agreement and without
- risk of deficiency judgment
- credit score impact
- alternate housing plan
- tax consequences
- relinquishment options RARELY make sense
Relocation Resources
Seniors
• For Chicago:
- IL Department on Aging, 800-252-8966
- Chicago Dpt. on Aging, 312-744-4016
• For Suburban Cook County:
- Eldercare, 800-677-1116/ eldercare.gov
Relocation Resources
HPRP
• Housing Prevention and Rapid Re-Housing
Program
• City of Chicago only – 311
• Suburbs offer only if homeless
• Housing relocation
• Monetary assistance
Debt Forgiveness:
Tax Implications Whenever Principal is Forgiven / Reduced
• Mortgage Forgiveness Debt Relief Act
- If Primary Residence, then amount
forgiven is NOT taxable
- EXCEPT, if it was a refinance, any funds
taken out and not used on the property
ARE still taxable – even if primary
residence
Debt Forgiveness:
Tax Implications
• Even if taxable, there is an exception
when the client is insolvent at the time of
the forgiveness
• IRS Publication 4681 & IRS News Release
IR-2008-17 for further details
• Refer to CVLS if tax advice is needed
What can you Expect from
CVLS?
– Sign up as volunteer, even if already CVLS vol
– Phone calls and / or emails requesting you to
take a case
– Agree to take a case, and receive documents
by email
– An experienced “support” attorney assigned to
your case who will keep in contact with you,
discuss the case, and possibly attend
mediation with you
What do you do when you
get a case?
• You will receive very few documents
– Notice of Mediation
– Mediation Referral Order
– Letters to you and the client
•
•
•
•
•
Client Intake, Case Work up and Mediation Summary
Working in a short time frame – get started immediately
Can meet with your client in person or by phone
Mediation summaries due 10 days prior to mediation.
Keep in touch with your support attorney
Can I cancel or continue a
mediation?
• Highly frowned upon, but can be done if
necessary
• Must have opposing counsel’s agreement –
email them in advance for agreement
• After you have their agreement, email CCR at
cookcountyforeclosuremediation@ccrchicago.or
g to continue or cancel
• Try not to give last minute notice – CCR is
working with volunteers also
What to Expect in the Mediation
– Bring with you all documents that have been
submitted
– Bring any updated documents you haven’t already
submitted
– Clients must appear
– Be prepared and on time
– Will last at 90 minutes
– Assume second mediation will occur
What to Expect in Mediation
- The Plaintiff must be on speaker phone
- Policy Statement / Confidential
- Each side’s perspective and goals
- Mediator may directly ask the parties
- Plaintiff goes first
- Prep client – opportunity to be heard but focus on
settlement – speak for your client if they prefer
What to Expect in Mediation
- Mediator summarizes issues, looks for common ground
Focus on specifics
- which program the Plaintiff is working under vs. the
program the Plaintiff SHOULD be working under
- arrearage and pay-off figures
- borrower eligibility – income & expenses
- Do not be afraid to ask for clarity – most often you know more
than the person on the phone
- Do not take the servicer’s answer as gospel – make them run
through all of their calculations with you – challenge any errors to
their numbers or their process
What to Expect in Mediation
•
•
Often times – what docs are still needed
– If docs are to be submitted they should go through plaintiff’s attorney
– Set out a timeline for submission and responses – DO NOT ACCEPT
UNREASONABLE TIME FRAMES
– Set an additional mediation date after the answer is expected – can be
cancelled if case settles
Get additional info so that you can refine your calculations before the next
mediation
– The most current Broker’s Price Opinion (BPO)
– Current unpaid principal balance, arrearages, total payoff
– Current escrow being paid
– If any other docs will need to be updated before next mediation
– If any other docs will be needed to be evaluated for other programs if
the one applied for fails – go ahead and submit them now
What to Expect in Mediation
• If you need time to discuss something with your client –
take them out in the hall – no discussions should proceed
without your presence
• If you have a question – call your support attorney or any
CVLS attorney in the program
• If the post mediation status date is before the next
mediation, make sure plaintiff’s attorney agrees to have
the mediation order continued
• If an agreement is reached, the mediator will complete a
summary of agreement – often subject to underwriting
What to Expect in Mediation
Issues that probably shouldn’t be addressed
• “Robo Signing” – this is a summary
judgment issue
• Standing – “produce the note” – this is an
issue for litigation
• Pleading assignments – attaching
assignments to the complaint is not
required
What to Expect in Mediation
Should I schedule another mediation session?
• Always error on the side of “yes”
• Even if you come to agreement, set another date
to make sure it is properly reduced to writing (it
is your job to review the written agreement)
• If the written agreement is satisfactory, you can
cancel the mediation
• Plaintiff’s attorney may fight you on this issue –
don’t worry, we can go to the post mediation
status date and ask the judge to continue the
mediation order
What to Expect in Mediation
What should I do if my client is in a trial modification?
• Cancel any mediation that is scheduled before the last
trial payment is due
• Request another mediation for immediately after the last
payment is due to mediate a permanent loan modification
– insist that this date be set
• Confirm that the plaintiff’s attorney will attend any
intervening post mediation status date and continue the
mediation order
• Touch base with your client and plaintiff’s counsel after
last payment is made to coordinate getting any required
updated documents submitted
What to Expect After Mediation
• You do not attend the 12 week post-mediation status
date at court
• Your client should attend – prepare them for what will
happen – their presence is not mandatory
• CVLS will provide the court a written summary of what
we are requesting / what happened – very basic, cannot
break confidentiality
• Either send case back to trial call, or extend mediation
order
• Talk to your supervisor after each mediation session –
we need to know what to report to the court for the 12
week status date