Mortgage Assistance Relief Services - Proposed Rulemaking, Rule
With regard to Question 4 (B) of the FTC request for comments, the following are comments relating thereto. Homeowners in distress have limited resources to attempt to negotiate modifications, deeds in lieu of foreclosure or short sales with servicers and holders of their mortgage notes. Attempts by government and not for profit entities to address these problems have had little effect on the foreclosure rate which has risen almost each quarter of the year since 2008. Many homeowners have been the victim of unfair and illegal practices by the originators of their loans including, but not limited to: The real estate settlement practices Act Truth in lending Unconscionable Terms Fraud in the inducement Fraud in the factum These violations are normally such that they can be raised even against the holder of the loan as a holder in due course. Some of these violations relate directly to the appraisal practices of the originators of the notes who improperly, under FIRREA, ordered appraisals by those brokers or production staffs who were "interested parties". In fact the settlement between the Attorney General of New York and the GSEs, highlights those practices and has become part of a new Code of Conduct to be enforced by the GSEs against originators of loans. Further, and consistent with the above, many appraisals were inflated to allow the transaction to occur. It has been argued that these practices create appraisals which are not "Bona fide" under TILA and are, thus, financing charges which should have been used in computing the amount financed and, hence, the APR of the loan. These violations of federal law can lead to various causes of action against holders, including defenses and counterclaims to a foreclosure proceeding or ancillary litigation in federal district courts based on violations of federal law in which case a foreclosure proceeding may be removed. As the foreclosure of the property is an equitable remedy, the plaintiff must show "clean hands" with regard to the transaction. Violations of the above laws could vitiate the ability of the holder to foreclose. As can be noted, non attorneys would not, and could not, bring such actions to bear in the assistance of the borrower. Even the threat of such actions might cause the holder of the note to settle claims by modifying the terms of the loan or by allowing deeds in lieu of foreclosure or short sales by releasing the borrower of liability for deficiencies between the sales price and the amount of the mortgage. Thus, the involvement of an attorney at the earliest possible time, is an important vehicle for borrowers in either litigating or settling with the servicer or holder of the loan. In each instance that the attorney is able to so negotiate or litigate a modification, deed in lieu or shortsale, borrowers are aided in either modifying their loan to what is affordable or negating the need for bankruptcy protection due to deficiency judgments. Attorneys would be hesitant to take cases without an upfront retainer and this would have a chilling effect on the ability of borrowers to either litigate or settle with the holder of the loan. Most attorneys will not take a case involving a single borrower on a pure contingent basis. A requirement that attorneys may not take an upfront fee would be counter-productive to the involvement of the home owners' best advocate when facing possible foreclosure. As to those attorneys who are best able to represent the interests of the borrower in an ancillary action in a federal district court, they may be those who are not within the state wherein the home or borrower are located. There may be many reasons to remove the action to a federal district court in a district other than the one in which the borrower or property is located. Thus, any attorney who may, under the Code of Ethics or state Bar Rules, represent the borrower, should be excluded from the province of any rule promulgated. The choice of using an attorney of the consumer's desires should not be negatively impacted by a rule of the FTC. This would, again, be counterproductive to the best interests of the consumer.