Second Mortgage Settlement Lawyer

Second Mortgage settlement
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Usually, when people ask about the second mortgage settlement, they’re referring to the 2012 National Mortgage Settlement. Shortly after the 2008 housing crash, which triggered the Great Recession, the country’s largest mortgage servicers agreed to end some controversial practices that helped create that crisis. These servicers also agreed to pay $25 billion.

Occasionally, people are referring to their own issues with HELOCS (home equity lines of credit), or second mortgages. In the 1990s, the government drastically changed the rules in this area, allowing many people to use the equity in their homes like they use ATMs. Many homeowners later regret these decisions, which mortgage brokers usually talked them into.

NMS Violations

As one might expect in a $25 billion settlement, the NMS contains too many provisions to be listed here. Some of the major ones include:

  • Dual Tracking: This practice is considering a borrow for a loan modification while simultaneously pursuing foreclosure. Most large servicers have separate modification and foreclosure departments. So, dual tracking is very common, even ten years later.
  • Robo-Signing: The mortgage crisis started, in part, because employees assumed documents were true and signed them, as opposed to reviewing them and signing them. Some banks literally used robots (computers) to sign these documents. If these homeowners challenge these foreclosures, they don’t hold up in court.
  • Failure to Inform Homeowners: Under the NMS, servicing companies must inform homeowners, or would-be homeowners, if their files are missing documents and give them a chance to make things right. Many of these people don’t find out about this problem until their second mortgage applications are denied or their properties are in foreclosure.

Some NMS violations are little more than technicalities. Others are serious issues that significantly affect homeowner rights.

If a servicing company violates NMS provisions related to a second mortgage and tries to foreclose on a property, the homeowner must usually either file bankruptcy to stop the proceeding or file a request for a temporary restraining order and hope the judge grants the request and grants the TRO. Neither option is particularly attractive.

Lender and Broker Fraud

Basically, fraud is knowingly making a false statement with the intent to gain financially. Misleading or pressuring people into getting second mortgages that they really cannot afford to pay certainly meets this definition.

Law enforcement agencies, like the FBI, aggressively investigate lender fraud allegations, especially if the political winds blow in a certain direction. Criminal cases punish unscrupulous lenders, but they usually do nothing to compensate victims. These victims must file civil suits to obtain this compensation.

Many second mortgage brokers are little more than hucksters. These individuals usually work on a commission basis. Therefore, second mortgage broker fraud is rampant, but it’s very difficult to sue these individuals. When these transactions go sideways, the broker is usually long gone.

Do I Need a Second Mortgage Settlement Attorney?

Maybe not. The second mortgage settlement, which was made in the wake of the 2008 housing bubble crisis, is over. As outlined below, large banks and mortgage servicing companies agreed to follow stricter rules, which is good. However, also as outlined below, these rules aren’t always enough to protect homeowners, so they often need more help.

In the early 2000s, many brokers steered individuals and banks to MBSs (mortgage-backed securities). That seemed like a good idea at the time. High-interest MBSs had excellent credit ratings.

To increase the MBS supply, and therefore sell more and make more money, banks started loaning money to poor-credit buyers. Banks also encouraged investors to buy real property. These two groups of people were more likely to default on mortgages when prices went up. Finally, around 2006, home values peaked, refinancing got harder, and the end was near.

Since so many investors sank so much money into MBSs, when the housing bubble burst, it drained savings and investment accounts worldwide. The ensuing Great Recession hit almost everyone very hard.

Key NMS Provisions

The 2012 National Mortgage Settlement, or Second Mortgage Settlement, was the “never again” moment for lawmakers. Some key provisions in this settlement include:

  • Dual Tracking: When borrowers fall behind on payments, banks have the carrot, which is a loan modification or other relief, and the stick, which is foreclosure. The NMS prohibits banks from using the carrot and the stick simultaneously.
  • Single Point of Contact: To customers, very few things are more frustrating than the runaround, especially if four or five people have four of five different answers to the same question. So, the NMS requires lenders and servicers to designate a single customer service representative for every loan.
  • Document Execution: The robo-signing controversy was one element of the housing bubble. A handful of people signed thousands of sworn affidavits, often without reading them. Most states are non-judicial foreclosure states, so such breakdowns routinely wnet undetected and unpunished.

Most NMS relief provisions benefited delinquent borrowers who were behind on payments. But these provisions didn’t do much to help borrowers who struggle to stay current. Any unexpected wave, like a divorce or job loss, could force them under the water. People who want to get ahead of a mortgage problem need to look elsewhere for relief.

Getting Out from Under a Second Mortgage

This financial crisis is better, but not over. Banks still offer 80/20 mortgages, allowing people to buy houses they can barely afford. Additionally, when home values are high, banks encourage borrowers to treat home equity like an ATM with a HELOC (home equity line of credit).

An attorney can lower, or even cancel, a second mortgage if there’s evidence of lender fraud. Basically, fraud is intentionally misrepresenting a material fact with the intent to obtain a financial gain. Courts are eager to avoid another Great Recession, so they scrutinize banks closely in this area.

If there’s insufficient evidence of fraud to prove a case, a Chapter 13 bankruptcy strip-off is an option. If Bill’s home’s value isn’t high enough to secure his first and second mortgage, a judge could declare that his second mortgage is a dischargeable unsecured debt. So, the bank must essentially tear up the note.

Picture of Bret Thurman

Bret Thurman

Bret is a former lawyer and full-time writer who knows how to simplify complex topics. He received his law degree from the University of Texas at Austin. For over twenty years, he handled a wide variety of cases, including criminal defense, personal injury, family law, and consumer bankruptcy.

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