Homeowner Beats Bank of America In Small Claims Court

On January 4, 2011, the Huffington Post's Arthur Delany reported a homeowner who was successful in bringing Bank of America into California's Small Claim Court and being awarded $7,595 after the Bank denied him a loan modification.


Dave Graham, the homeowner told the Huff Post, "It was a good victory for me and I think for homeowners around the country."  This author agrees.

What is supposed to be a three month trial, the bank dragged on for 18 months - an all too common occurrence; at which point the Bank informed the homeowner that he did not qualify for a loan modification and the Bank demanded immediate payment of approximately $7,000 (the difference between the normal mortgage payment and the modified trial payments), or the Bank would foreclose on the property.


Graham was successful in bringing his case into the Small Claims Court.  The Bank states that they will appeal - something they can do in California.  Let's see what happens....

Fannie Mae - New Program for Forclosure Help - starts 8/1/2010

Fannie Mae Introduces HAFA Program - You can read the announcement here.


On Tuesday, June 1, Fannie Mae issued Servicing Guide Announcement SVC-2010-07, introducing Fannie Mae's Home Affordable Foreclosure Alternatives (HAFA) Program. It, like Treasury's Home Affordable Foreclosure Alternatives Program (as described in Supplemental Directive 09-09 Revised), is designed to mitigate the impact of foreclosures on borrowers who are eligible for a loan modification under the Home Affordable Modification Program (HAMP) but ultimately are unsuccessful in obtaining one.

Program Features:

The Fannie Mae Home Affordable Foreclosure Alternatives Program, which becomes effective August 1, 2010, simplifies and streamlines the use of short or "preforeclosure" sale and deed-in-lieu of foreclosure (DIL) options on HAMP-eligible loans by incorporating the following unique features:

• Complements HAMP by providing alternatives for borrowers who are HAMP eligible (including borrowers facing imminent default);

• Allows the borrower to receive pre-approved short sale terms prior to the property listing;

• Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission agreed upon in the listing agreement;

• Releases the successful HAFA borrower from future liability for the debt;

• Uses standard processes, documents, and timeframes;

• Provides financial incentives to borrowers, servicers and subordinate lienholders; and

• Utilizes verified borrower financial and hardship information collected in conjunction with HAMP, eliminating the need for additional eligibility analysis.

Short Sales in New York - Deficiency Judgments

As an attorney I have been working with homeowners in the luxury real estate market in Manhattan.  As we have been completing short sales, the banks have waived the deficiency judgments on loans that are close to the sale price.  However, in a recent Bank of America short sale - the loss is in excess of 500K -- I was presented with the following language that the bank would not waive the deficiency unless state law required it.

Is there a New York State law that requires waiver of the deficiency in a short sale?  The short answer is no. 

How contrary is this?  When you access the New York State Banking department's website, it specifically states:

•  "Short Sale:  The lender lets the borrower sell the house for less than the outstanding loan amount, takes the proceeds and forgives the remaining debt."

However after I called the Banking Department about this claim, no one could answer my questions, and they suggested that I speak with an attorney.  Interesting.

After speaking with several real estate attorneys, and the New York City Bar's attorneys who specialize in foreclosures - the answer is the same -- there is no law that says the bank must waive the deficiency judgment.  It seems to me as a reasonable person, that the bank would recognize that after all the work performed to acquire a buyer for a property at a higher amount then the bank would be able to receive in foreclosure, that waiving a deficiency is a better choice than taking the bankruptcy route.  But then again, who ever said that the people at the banks are reasonable?

Keep this in mind - bankruptcy is the option to all of this and in New York State there is no law that says (at the time of this post) that a bank must waive the deficiency against the homeowner for the amount of the loan that will not be paid off in a proposed short sale.

At my law site I have further information regarding foreclosures, short sales, and loan modifications.

NAR issues brochure to help reduce short sale stress

On April 5, 2010, the U.S. government will implement the Home Affordable Foreclosure Alternatives Program (HAFA). The HAFA helps homeowners who are unable to retain their home under the Home Affordable Modification Program by simplifying and streamlining the use of short sales and deeds-in-lieu of foreclosures. Homeowners must meet certain requirements to participate and incentive payments are provided to homeowners and servicers. To help REALTORS understand HAFA and its guidelines, the National Association of REALTORS ("NAR") has released an informational brochure available through the links below:
NAR’s press release
HAFA brochure