Announcement Date: February 13, 2030
In an email from Kamala Harris, California Attorney General, sent by Benjamin Diehl, cc. Katherine Porter, California Monitor, Joseph A. Smith, Monitor
Dear Ms. Mudick:
To follow up on Chase’s recent call with the Monitoring Committee, I am writing to request information regarding Chase’s practices with respect to second liens under the National Mortgage Settlement. I respectfully request a reply to this letter letter by November 9, 2012.
Chase’s solicitations for extinguishments of second liens under the Settlement seem to have occurred in a variety of scenarios, in which homeowners are in quite different situations with respect to their personal liability for the debts, the status of their first liens and second liens, and potentially the ownership of their homes.
I am attaching a list of scenarios where second lien issues arise. With respect to each situation described, I ask that you answer the following questions:
(1) Has Chase solicited any homeowner who is in the described situation?
(2) If so, will Chase seek credit for second lien forgiveness for such activity? Under
which Settlement provision will credit be sought? For example, would Chase seek credit for waiving a deficiency (credited at $0.10 on the dollar) even though a bankruptcy discharge already insulates a debtor from personal liability on any such deficiency?
(3) What benefits does a homeowner derive from second lien extinguishment in this scenario? For example, if a borrower receives a solicitation for second lien forgiveness, would Chase unwind the sale its foreclosure trustee already conducted on the first lien?
Also, and more generally, does Chase currently search its customer records to avoid inappropriate solicitations? For example, does Chase identify borrowers whose second liens, as of a date certain, have been extinguished as a result of foreclosure or have been stripped off by order of a bankruptcy court under a completed chapter 13 repayment plan? If not, what steps, if any, has Chase developed to avoid such solicitations going forward? Lastly, has Chase drafted correspondence that is tailored to an individual borrowers particular financial circumstances?
I also ask that Chase provide copies of solicitation letters sent to borrowers, including the initial version of the letters, and any subsequent revised or corrected versions. I look forward to receiving your written response to these questions. If you have any questions regarding this letter, please contact me. See Letter From Kamala Harris CA AG Stephanie Mudiick of JPMC re. 2nd Lien Ext., Oct. 25, 2012
SCENARIOS PRESENTING SECOND LIEN ISSUES
• Forgiveness of a second lien when creditor is in the process of foreclosing on a first lien.
Servicers should solicit borrowers for home retention options, including a loan modification, before foreclosure. Second lien forgiveness is not appropriate without an effort to modify the first lien and prevent the foreclosure.
• Forgiveness of a second lien when creditor has foreclosed on a first lien. The foreclosure of a first lien extinguishes any junior liens and will trigger applicable anti-deficiency statutes, which insulate a borrower from personal liability for any remaining debt. For these reasons, a creditor’s foreclosure on a first lien obviates the need for any activity with respect to a second lien, at least in antideficiency states such as California. Servicers should not solicit debtors who have previously lost their homes to foreclosure and should ensure coordination between their foreclosure departments and their second lien programs to avoid such activity.
• Forgiveness of a second lien for a chapter 7 debtor who has surrendered the property.
Upon surrender by a chapter 7 debtor, the property reverts to the secured creditor. The secured creditor maintains its lien and can take possession of the property. In these circumstances, solicitations by servicers are likely delivered to empty homes and addressed to borrowers who no longer occupy the property. More importantly, such borrowers have very likely been relieved of personal liability for any remaining debt by the entry of a bankruptcy discharge. Servicers may want to avoid soliciting this group of borrowers or may not want to pursue credit for such activity due to the likelihood that such homes do fall—or shortly will fall—into the two categories described in the non-bankruptcy section above.
• Forgiveness of a second lien for a chapter 7 debtor who remains current on his mortgage payments (often called “ride-through”) or who has reaffirmed the second lien debt. A chapter 7 debtor who remains current on his mortgage payments and who continues to occupy the property may benefit from a servicer’s second lien activities. While a bankruptcy discharge may protect a debtor from personal liability for the second mortgage debt, it leaves unaffected the lien associated with such debt. This means that a secured creditor may proceed with foreclosure on the lien if the borrower defaults.
A debtor who has reaffirmed a second lien debt may also extract a benefit from a servicer’s second lien activities. Once approved by a bankruptcy court, a reaffirmation agreement makes a debtor personally liable for any deficiency in the event of default, despite the entry
of the bankruptcy discharge. If a servicer extinguished a second lien for such a borrower, that borrower’s liability for the underlying debt would also be eliminated.
Famous brother-in-law of Tony West – The U.S. Associate Attorney General who executed the $13B RMBS Settlement with JPMorgan Chase on November 19, 2013, along with 5 attorneys from the States of California which received a purported $298,973,005.98.