Circuit Court of Cook County Mortgage Foreclosure Mediation Program

Homeowner’s Attorney Training

Patricia NelsonDirector, Foreclosure Mediation Program

CVLS Contact Information

Patricia Nelson, Director of Foreclosure Mediation Program312-332-5539; pnelson@cvls.org

Natalie Weidemier, Attorney Support Supervisor312-332-1687; nweidemier@cvls.org

Rebekah Rashidfarokhi, Staff Attorney312-332-7399; rrashidfarokhi@cvls.org

Shirley Chiu, Staff Attorney 312-332-8239; schiu@cvls.org

Daniel Santrella, Foreclosure Mediation Administrator312-332-7546; 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 Sale: No notice if default

December 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 OptionsBorrower 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 EligibilityCan 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 EligibilityIncome 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 EligibilityBorrower 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 EligibilityLoan 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 QualificationTarget 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 QualificationWaterfall 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 QualificationWaterfall 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 QualificationWaterfall 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 QualificationWaterfall 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 QualificationWaterfall 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 QualificationNet 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 QualificationNet 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 QualificationReasons 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 HAMPWhat 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.cfm

• 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 OptionNon 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 OptionRepayment 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 OptionChapter 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 OptionsBorrower Surrenders Property

• Deed in Lieu of Foreclosure

• Consent Judgment

• Short Sale

• Relocation Assistance (“Cash for Keys”)

Relinquishment OptionDeed 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 OptionConsent 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 OptionShort 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 OptionHAMP 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 incomeSupp. Dir. 09-09

Relinquishment OptionHAMP 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 ResourcesHPRP

• 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.org 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 MediationIssues 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 MediationShould 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 MediationWhat 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