1. Circuit Court of Cook County Mortgage Foreclosure Mediation Program
Homeowner’s Attorney Training
Patricia Nelson
Director, Foreclosure Mediation Program

2. CVLS Contact Information
Patricia Nelson, Director of Foreclosure Mediation Program ;
Natalie Weidemier, Attorney Support Supervisor ;
Rebekah Rashidfarokhi, Staff Attorney ;
Shirley Chiu, Staff Attorney ;
Daniel Santrella, Foreclosure Mediation Administrator ;

3. 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

4. 2 Possible Components to CVLS assistance for homeowners
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

5. 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

6. 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

7. Court Process for Mediation
Opt in program – not automatic – tries to ensure you have engaged clients
Summons w/ Hotline Number:
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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. Retention Options Borrower Remains in the Property
HAMP Loan Modification
Non-HAMP Loan Modification
Forbearance
Repayment
Chapter 13 Bankruptcy

15. 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

16. 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

17. Other Helpful Resources
Websites:
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

18. 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

19. Three Step Process Step 1 - Loan must be eligible
Step 2 - Borrower must be eligible
Step 3 - Borrower must qualify
Waterfall Analysis
NPV test

20. 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
Non-GSE loans – servicers, not investors choose to participate
List with contact information available online -
Applies to operating subsidiaries/affiliates
Servicer Participation Agreement (SPA) available online –

21. Step 1 – Loan Eligibility Can Investors Forbid HAMP mods?
If investor forbids modification, servicer must request waiver
Supp. Dir : servicers required to use “reasonable efforts” to get approval
- Supp. Dir : 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

22. Step 2 – Borrower Eligibility Income 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

23. Step 2 – Borrower Eligibility Borrower 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
BUT – filing BK puts an automatic stay on the mediation

24. Step 2 – Borrower Eligibility Loan 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

25. Step 3 – Borrower Qualification Target 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%

26. Step 3 – Borrower Qualification Waterfall 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.

27. Step 3 – Borrower Qualification Waterfall 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.

28. Step 3 – Borrower Qualification Waterfall 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.

29. Step 3 – Borrower Qualification Waterfall 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

30. Step 3 – Borrower Qualification Waterfall Analysis – Principal Forbearance or Reduction
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%

31. Step 3 – Borrower Qualification Net 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.

32. Step 3 – Borrower Qualification Net 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

33. Step 3 – Borrower Qualification Reasons 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

34. 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

35. Applying for HAMP What 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

36. 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

37. 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

38. 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.”

39. 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

40. 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

41. 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
Mortgagee Letter sets forth basic outline
Be aware of other modification options available for FHA mortgages
See, e.g., Mortgagee Letter (requiring that modifications reduce the base rate to the current market rate)

42. Retention Option Non 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

43. 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

44. Retention Option Repayment Plan and Reinstatement
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)

45. Retention Option Chapter 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

46. Relinquishment Options Borrower Surrenders Property
Deed in Lieu of Foreclosure
Consent Judgment
Short Sale
Relocation Assistance (“Cash for Keys”)

47. Relinquishment Option Deed 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

48. Relinquishment Option Consent 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

49. Relinquishment Option Short 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

50. Relinquishment Option HAMP 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 income
Supp. Dir

51. Relinquishment Option HAMP 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

52. Relinquishment Option Relocation Assistance (“Cash for Keys”)
DIL variation
Lender pays Borrower to timely vacate home w/out destroying property
Lender avoids incurring eviction costs

53. 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

54. Relocation Resources Seniors
For Chicago:
- IL Department on Aging,
- Chicago Dpt. on Aging,
For Suburban Cook County:
- Eldercare, / eldercare.gov

55. Relocation Resources HPRP
Housing Prevention and Rapid Re-Housing Program
City of Chicago only – 311
Suburbs offer only if homeless
Housing relocation
Monetary assistance

56. 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

57. 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 for further details
Refer to CVLS if tax advice is needed

58. What can you Expect from CVLS?
Sign up as volunteer, even if already CVLS vol
Phone calls and / or s requesting you to take a case
Agree to take a case, and receive documents by
An experienced “support” attorney assigned to your case who will keep in contact with you, discuss the case, and possibly attend mediation with you

59. 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

60. Can I cancel or continue a mediation?
Highly frowned upon, but can be done if necessary
Must have opposing counsel’s agreement – them in advance for agreement
After you have their agreement, CCR at to continue or cancel
Try not to give last minute notice – CCR is working with volunteers also

61. 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

62. 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

63. 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

64. 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

65. 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

66. What to Expect in Mediation Issues 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

67. What to Expect in Mediation Should 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

68. What to Expect in Mediation What 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

69. 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