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Courts not Aware of Federal Law that suspends forelcosure actions

Legally, banks and servicers must suspend foreclosure actions, including initiation of new foreclosure actions, and may not proceed with a foreclosure sale until the homeowner has the opportunity to apply for Home Affordable Modification Plan
 
Banks are being granted judgments against homeowners in foreclosure actions which, according to Federal law, should not have even been initiated.
 
The States' Circuit Courts’ Chancery divisions may not be fully informed about the Federal law regarding the Making Home Affordable Modification Program (“HAMP”), and may be inadvertently allowing foreclosure actions to proceed. Under federal law banks and servicers must suspend foreclosure actions, including initiation of new foreclosure actions, and may not proceed with a foreclosure sale until the homeowner has the opportunity to apply for Home Affordable Modification Plan (“HAMP”). 
 
The Obama Administration’s Making Home Affordable program (HAMP) will offer assistance to as many as 7 to 9 million homeowners making a good-faith effort to make their mortgage payments, while attempting to prevent the destructive impact of the housing crisis on families and communities. Source - www.financialstability.gov
 
The U.S. Department of Treasury estimated that 85 percent of all mortgages are eligible for the Making Home Affordable Program. However, due to the fact that banks and servicers are not making a good faith effort to comply with the Making Home Affordable Program very few homeowners are being helped. Nationally, foreclosure filings have continued to increase as many homeowners who are eligible for the Home Affordable Program have not been given the opportunity to apply, were not informed of their eligibility, or are simply denied.
 
Recent foreclosure filing rates in the Chancery Division of the Clerk’s Office of Cook County show a rapid increase following a slowdown during April and May 2009. The number of foreclosures filed in July 2009 reached 4,788, the highest monthly total for the year.
 
On August 20th 2009, The Honorable Dorothy Brown, Clerk of the Circuit Court of Cook County, convened a meeting with bank representatives, housing counselors and community organizers to analyze the causes of the current foreclosure crisis and to develop ways in which the court, loan servicers and community groups can help the thousands of people facing foreclosure in Cook County. Ms. Patricia Holden of Bank of America, the largest servicer in the United States, boasted servicing one in five mortgages equating to almost 14 Million loans. Holden proudly disclosed that Bank of America has doubled the number of associates dedicated to home retention to 7,400 this year. Mr. Rod Luckhart and Mr. Jack PenaSoto of Wells Fargo, the nations 2nd largest servicer of approximately 8 Million loans respectively, proclaimed that they had 11,000 associates dedicated to home retention. 
 
The combined resources that just these two major lending institutions have dedicated to home retention is equal to .08 % of their entire servicing portfolio, less that 1/10 of a percent. This abysmal percentage truly represents the Banks intentions to comply with the Presidents HAMP program. Thousands of American families are losing their homes to foreclosure daily because banks and have not dedicated the resources necessary to implement this program effectively and the courts are not aware of the Federal law that suspends foreclosure actions. 
 
On November 12th 2009, The Honorable Dorothy Brown, Clerk of the Circuit Court of Cook County, convened a follow-up meeting to further discuss the foreclosure crises, closely examine the suggestions that were raised at the first meeting and promote the fact that the banks, loan servicers, neighborhood housing counselors and the Circuit Court Clerk’s Office are interested in finding ways to help the growing number of people facing foreclosure in Cook County. 
 
The latest statistics from the Clerk’s office Chancery Division show that the precipitous rise in foreclosure filings continue unabated. The 2009 third quarter report reveals that a record-breaking total of 14,132 foreclosures were filed in Cook County (July: 4,788; Aug.: 4,279; Sept.: 5,065). If this rate continues through the remainder of 2009, it projects out to 40,060 mortgage foreclosures being filed and that would be 334 more than the 43,726 filed in 2008.
 
The Honorable Clerk Brown had intended on inviting the media to the second half of the meeting to ask questions and report on how the Clerks Office and various entities were collaborating on addressing the foreclosure related issues. Clerk Brown felt it was important that the public be made aware of how the group was working together to tackle the foreclosure crisis as well as how affected individuals may best access available resources.   Although every housing counselors and community organizers was in attendance, not a single bank representative attended the follow-up meeting, citing a scheduling conflict with a banking conference. In her efforts to develop a plan of action and absent the banking representatives, Clerk Brown still convened the meeting. 
 
At the meeting Clerk Brown was informed of the Federal law in accordance with underwriting guidelines detailed to banks and servicers for President Obama’s Administrations Home Affordable Modification Program that suspends foreclosure actions. Clerk Brown pledged to review the information and forward it on to the Circuit Court's Chancery divisions.
 
President Obama signed the American Recovery and Reinvestment Act of 2009 into law on February 17th. On April 6th 2009 the Treasury Department issued uniform guidance for loan modifications across the mortgage industry in supplemental directive 09-01:
 
In accordance to the underwriting guidelines for HAMP within this law:
 
  • All Fannie Mae-approved servicers must participate in the program for all Fannie Mae portfolio mortgages loans and MBS pool mortgage loans guaranteed by Fannie Mae.
  • Any foreclosure action will be temporarily suspended during the trial period, or while borrowers are considered for alternative foreclosure prevention options. In the event that the Home Affordable Modification or alternative foreclosure prevention options fail, the foreclosure action may be resumed.
  • Participating Servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waivers of limits on participation. 
On April 21st 2009 the Treasury amended the supplemental directive 09-01 with Announcement (09-05R):
 
Q3. How should borrowers who contact their servicers be handled with respect to HAMP if the service does not yet have the proper documents or is not yet equipped to evaluate the borrowers’ situation?
 
  • Servicers are required to validate the homeowner’s eligibility for HAMP and capacity to pay. Servicers should begin the process of collecting the required documentation from the homeowner and the information necessary to establish an escrow account on non- escrowed loans. Based on the servicer’s understanding of the homeowner’s ability to pay, a service may place a homeowner on a forbearance plan pending its ability to execute a HAMP modification. Foreclosure actions (with the exception of those in Georgia, Hawaii, Missouri and Virginia), including initiation of new foreclosure actions, must be postponed for all borrowers that meet the minimum HAMP eligibility criteria.  
Q8. Must servicers suspend foreclosure or not initiate foreclosure for all borrowers who are potentially eligible for the HAMP?
 
  • To ensure that a borrower currently in foreclosure or at risk of foreclosure has the opportunity to apply for a HAMP modification, servicers should not proceed with a foreclosure sale until the borrower has been evaluated for the program. Additionally, servicers are strongly encouraged not to initiate foreclosure until a borrower has been evaluated and determined to be ineligible for the program or the borrower fails to respond to a Trial Period Plan offer that has been made by the service. 
Federal law states that, “Foreclosure actions (with the exception of those in Georgia, Hawaii, Missouri and Virginia), including initiation of new foreclosure actions, must be postponed for all borrowers that meet the minimum HAMP eligibility criteria”. The Federal law additionally states that the servicers are required to validate the homeowners’ eligibility for HAMP and the homeowner must be given the opportunity to apply.
 
Federal law also states that, “To ensure that a borrower currently in foreclosure or at risk of foreclosure has the opportunity to apply for a HAMP modification, servicers should not proceed with a foreclosure sale until the borrower has been evaluated for the program”. 
 
Therefore, in accordance with Federal law, States' Circuit Court's Chancery divisions (with the exception of those in Georgia, Hawaii, Missouri and Virginia) should not allow a foreclosure action, including initiation of new foreclosure actions, or foreclosure sales to proceed until such time that the bank can document that a homeowner has been given the opportunity to apply for a HAMP modification.
 
Currently banks and servicers are required to mail a document that informs the homeowner of their potential eligibility for a HAMP via regular mail. Regular mail does not guarantee receipt by the homeowner of this document and therefore does not ensure that a borrower currently in foreclosure or at risk of foreclosure has been made aware of their eligibility or has had the opportunity to apply for a HAMP modification. 
 
In order to proceed with a foreclosure action, banks and servicers should be required to present the courts with documentation that the homeowner is not eligible for the HAMP program or an affidavit by the homeowner that they are aware of their eligibility but do not wish to participate.