Public Foreclosure Seminars/meetings:  
April 6, 2010 Reno-Sparks Convention Center,  1 pm -7:30 pm
April 7, 2010: 1155 E 9th, 4-6:30 pm
April 17, 2010: 1155 E 9th, 9 am-Noon

Reno is in the midst of a foreclosure crisis the likes of which has never before been seen. According to the Reno Evening Gazette, more than half the homes with mortgages in this town are underwater, meaning the unpaid balance of the home's mortgage exceeds its fair market value.  As of Oct. 18, 2009, some experts were predicting that the market value of Reno homes will drop another 10% or so during the next year.

Some buyers forget that a home is the place to live and the stock market is the place to speculate, i.e. they bought their home as an investment.  It is the nature of some investments to go bad.  We have no sympathy with these folks, though we certainly will represent them if they were defrauded or some such.  Even investors have a right to an honest deal, well disclosed.

Some buyers though, perhaps most, just bought a home to live in, as folks have been doing for hundreds of years. They weren't investing and, so long as they still make the income they were making when they took out the loan, they should just pay it back, as they promised to do.  Who cares whether they have or don't have equity?  Who cares that they are upside down? They have a place to live, a place to put their kids to bed in every night.  These folks are OK.  However, even these folks might benefit by viewing their situation economically rather than morally.  In a capitalist society, morality generally takes a back seat to making a buck.  This is certainly so for the banks and there is nothing inherent in homeownership which decrees that homeowners should not be guided by the same principle.  After the bail-outs, what's your bank's credit score and how long will it take the bank to recover?  If two are playing a game, the rules should be the same for both sides.  

But then there's another group of folks, those who have lost their jobs or who bought adjustable rate mortgages and who, before October 1, 2009, pledged their home as security for a loan, purchase money or otherwise.  These problem-folks have suffered a loss of income, often by job-loss, after taking out the loan, or, if they still make the same income, have suffered an increase in mortgage payments under the terms of their adjustable interest rate loan, putting the payment out of reach.  (On the other side, is another group of problem-folks: those who bought securities of institutions which had purchased mortgage backed loans, or portions thereof, which are underwater, before or after they had been converted to securities).

The bad guys, if there are such, are the middle men...the financial institutions and their friends which facilitated these loans for, of course, a profit.  Not all of them.  Some appraisers were honest, some were not.  Some mortgage brokers were honest. Some were not. Some real estate brokers were honest. Some were not. Many knew or should have known that the buyer couldn't pay and that therefore the investors were buying little more than air.
And, to be honest, the bad guys are also the homebuyers and their banks, with, perhaps banks being a bit more to blame, if blame is important, as they are supposed to have the expertise needed to evaluate risk.

A question that has yet to be definitively resolved is "who can foreclose?"  Folks who live in states which require a judge to foreclose have a leg up on states such as Nevada, where the foreclosure generally takes place outside of court. MERS (Mortgage Electronic Registration Systems, Inc.) claims the right to foreclose in its own name.  Yet the homeowner normally does not owe MERS anything.  MERS never loans money, never borrows money, has no financial interest in any property and holds no notes or mortgages on any property. Does someone who has no financial interest in the property whatever have the right to direct the trustee to foreclose on that property? If MERS is an agent, does it have to disclose its principal?  Cases, most of them well-reasoned, are coming down on all sides of this question - all over the country.  Some think that the changes wrought by MERS are so significant that some legislative sanction is necessary.  They think that the legislative scheme is designed to ensure that the homeowner can readily determine who owns his note, while MERS claims that all the homeowner needs to know is who is servicing his loan. Others point out that neither the homeowner nor any third party is harmed by MERS, so long as the homeowner is actually in default. To date, homeowner suits attempting to permanently arrest a foreclosure have not fared too well in Nevada.  But stay tuned.  As plaintiff's attorneys become more experienced, that may change.

A related question is "what does the note holder get on foreclosure?"  We have arguably specific statutory guidance in NRS 40.451, restricting foreclosure "indebtedness" as follows: " . . . Such amount constituting a lien is limited to the amount of the consideration paid by the lienholder."  This would seem to require at least three things:  1.  Name(s) of noteholder; 2. Amount noteholder paid; and 3.  Enough cash to pay that amount.  The first two of these are hard to determine in a non-judicial foreclosure state like Nevada.  We suppose a letter to the foreclosing entity would be in order, so inquiring and, if the information is refused, perhaps a lawsuit would be necessary to get it.

So what to do? Perhaps someday the Nevada Legislature will provide in residential cases that a notice of default and election to sell must contain the name and address of the current owner of the mortgage. Meanwhile, if the home you bought to live in is underwater and you can't make the payments, then you have several options in Nevada.  

One is to wait for the foreclosure sale and hope that the holder of the note doesn't come after you for a deficiency.  This is very, very risky.  Too risky.  You have to assume that the mortgage company will exercise its  rights as they exist under Nevada law.  But, on the other hand, if your home is already significantly upside down, you effectively already have a virtual or inchoate judgment against you for the difference between the fair market value of the property at the foreclosure date and the outstanding balance of the note (but see above discussion of NRS 40.451 defining "indebtedness").  So you get a windfall if the mortgagee doesn't exercise its rights to seek a deficiency.  And a real judgment against you if it does. The foreclosing bank only has 6 months after the foreclosure sale to sue you for a deficiency, so you generally know whether you have to pay back the deficiency amount right away. (Note that if your residential loan is a FHA loan, Federal law prohibits deficiency.  And the VA strongly discourages deficiencies on its loans.  Also, if your residential loan was made after October 1, 2009 and 1) The real property is a single-family residence; 2) The loan was used to buy the property; 3) The borrower continuously occupied the property as a principal residence after the loan was made; 4) The original loan was not refinanced; and 5) the loan was made by a financial institution, this discussion doesn't apply in large part because such loans are rendered non-recourse by a 2009 Nevada law.)

One significant advantage to the foreclosure option (it really isn't an "option" sometimes) is Nevada's new mediation program. Nevada has enacted legislation that requires a Notice of Default filed after July 1, 2009 to be accompanied by mandatory mediation forms.  Any homeowner who can should, upon receiving a Notice of Default, take advantage of this mediation option.  This requires the homeowner to promptly complete and return the mediation forms and promptly pay the mediation fee. The first advantage is that the bank can't ignore you any more... it has to send someone with some authority to the mediation hearing. The second advantage is that, depending on the mediator, you just might be able to find out who owns your note.  For further information about mediation, see this article from the National Consumer Law Center.
 
Another option is to file bankruptcy.  However the bankruptcy court can't (and won't) modify the loan if it is secured by your principal residence.  Nonetheless, if there is a junior mortgage that has been rendered completely unsecured by the reduction in market value, the bankruptcy court might allow it to be discharged. That could help some, but you would still have to pay all mortgages that are fully or partially secured.  And, depending on your income and other assets, you might still be required to pay back all your unsecured creditors, including the sold-out junior mortgage. Basically, for most people, bankruptcy is probably not a good way to save their home for any extended period of time.  As far as that goes, bankruptcy has not been much of an option for middle-class Americans since the Bush amendments to the bankruptcy code took effect in October, 2005, amendments which, not surprisingly, were supported by Nevada's Governor, who was then in the House of Representatives.  Those amendments basically converted the former free-wheeling American capitalistic bankruptcy system into a clone of the heavily moralistic bankruptcy systems so prevalent in Europe.  If anyone wonders who no one is buying new cars anymore, they might take a moment and look at what Bush did to our bankruptcy laws.

Still another is the lawsuit option.  Depending on the facts of your case, you might have a lawsuit against one or more of the financial institutions who sold you the loan.  Or agents of the financial institution, or against others, such as appraisers and brokers who were involved in the process.  If you don't want to keep the home, you might, depending on your facts, have a suit for rescission.  If you want to stay in your home, you might have a suit for damages.  Or an injunction, temporary or permanent. Or other relief.  

Another option is to seek to modify the loans on your home....to deal with the bank or whoever claims to represent the holder of your note.  For a whole lot of folks, this is a reasonable way to approach the problem.  This process is started in lots of ways, but probably the best is to log on to makinghomeaffordable.gov and familiarize yourself with the various available options.  There is no way we can completely cover this field, but we will now briefly discuss a couple of the options available to some:

Home Affordable Modification program (HMP).  www.MakingHomeAffordable.gov   If the first mortgage (deed of trust) on your owner-occupied home is a Fannie Mae or Freddie Mac Conventional mortgage originated before 1/1/09, you may qualify for the HMP. Call 800-7Fannie or 800-Freddie to find out.  The basic idea of this program is to get your mortgage payment down to 31% of your gross income.  The unpaid balance of the first mortgage can't exceed the maximum amount (its pretty high - most loans qualify) and the cost of the HMP can't exceed the cost of foreclosing on the home. Nonetheless, the benefit can be significant for those who qualify. For example, interest can be reduced to as little as 2% for five years and under some circumstances, payment of a portion of the unpaid balance of the mortgage can be deferred for many years, without interest. If, as noted above, you look on your home as a place to live and not as an investment, HMP often presents a very attractive way to keep it. We here don't go into detail as the details may change. HMP only helps with the first mortgage, but we note that there might be some help available for your second mortgage, under certain circumstances through related programs.

Home Affordable Refinance. www.MakingHomeAffordable.gov    If your owner-occupied home has a loan is owned or securitized by Fannie Mae or Freddie Mac, you may be able to refinance your loan into a more affordable mortgage and thereby reduce your monthly mortgage payments.

If your home is insured by FHA, you might be able to take advantage of FHA-HAMP, similar in ways to Freddie Mac/Fannie Mae's HMP.  www.hud.gov/offices/hsg/sfh/nsc/lmmltrs.cfm.

If you are considering a loan modification, we strongly recommend that you check with one or more of the following free counselors for mortgage assistance:  

Consumer Credit Affiliates, 3100 Mill St, Suite 111, Reno, NV 89502  (775-337-6363) www.cccsnevada.org;

Nevada Legal Services, 650 Tahoe St., Reno, NV 89509 (775-284-3491) www.nlslaw.net;

Washoe County Senior Law Project, 1155 E. 9th St., Reno, NV 89512 (775-328-2592) www.washoecounty.us/seniorsrv/Legal/legal.htm.  

No doubt there are other non-profits which will help you free of charge. These agencies can be very helpful in completing the necessary forms and in dealing with your loan servicer.  If, after exhausting these remedies, you still need help, you can call us.  But that rarely makes sense.  We are lawyers, not loan-modifiers. And we will charge you our $300 hourly fee for what is all too often an unsuccessful outcome. In short, if you want a loan modification, do it yourself or with the help of a non-profit counselor.

Deed for Lease Program.  Some might want to take advantage of Fannie Mae's new program, under which qualifying homeowners who are facing foreclosure will be able to voluntarily convey the property back to the lender, then remain in their homes under a lease for up to a year, with possible term renewal or month-to-month extensions.  If the property is subsequently sold, it will include an assignment of the lease to the buyer.  Although the stated goals are worthwhile (helps eliminate uncertainty, keeps families in their homes, helps to stabilize neighborhoods and communities), there are pitfalls for the unwary, such a bankruptcy and equitable mortgage issues.  Anytime a borrower keeps a possessory interest in the property foreclosed on, there is a chance that a court will find that the lease is really an equitable mortgage.  At least Fannie Mae's purchaser better get good title insurance.

Short Sales. We note that some brokers are pushing "short sales," where the upside-down homeowner sells to a third party for less than the outstanding balance of the note.  In early April, 2010, the Obama administration's Making Homes Affordable program took up the short-sale cause as a way of helping solve the foreclosure crisis. It is yet to be seen if this will work as it requires the voluntary cooperation of the mortgagee (bank).  Additional issues are whether the bank reserves the right to seek a deficiency judgment as a condition to giving its consent to the short sale. The new federal short-sale program may ameliorate the often adverse tax consequences, perhaps depending in part on whether a bankruptcy petition is filed before or after the "short sale" closes. Check with your tax advisor. But, if your credit score is important to you, the bank agrees to mark the loan "paid" rather than "settled," and the holder of any junior lien goes along with the program, this might be a way to go.  

In sum, as you can see, this is a complicated mess.  Nonetheless, perhaps we have shown you that if your home is "underwater," you are not without recourse.  Remember, you can always "walk" and if you don't risk a deficiency and the amount you are underwater is significant, this may be your best alternative.  Even if you do risk a deficiency, "walking" is sometimes the best of your options.  A gamble, perhaps, but the big boys take these sort of gambles all the time.  If you decide to walk, best to get some good advice first.  That, again, is what the big boys do.