More on Caliber Home Loans and LSF9 Master Participation Trust - Beckwith vs. Caliber Home Loans

I ran across a 2015 court case from the United States Federal District Court for the Northern District of Alabama, Beckwith vs. Caliber Home Loans et al.  This is a case where a borrower whose mortgage had been assigned to LSF9 Master Participation Trust (serviced by Caliber Home Loans) sued Caliber and those up the chain of ownership alleging a bunch of theories of liability including breach of contract and Truth In Lending Act violations.  The originating bank filed a demand for arbitration. There was an arbitration clause in the contract.  The borrower claimed that the Dodd Frank Act applies which bars arbitration clauses in home mortgage contracts but which wasn't passed until after this loan was executed.  The court held that the original lender gets to hide behind the arbitration clause because as a general rule statutes passed after contracts are executed can't change the terms of the contract; however, because Caliber was not a party to the contract, Caliber can't hide behind the arbitration provision.   This case might be useful to anyone litigating against Caliber in the future.  (It is only binding authority in the Northern District of Alabama, but the reasoning is about what I would have expected.)

Is Caliber Home Loans engaged in a pattern and practice of Stealth Foreclosures?

I am beginning to get the picture that Caliber Home Loans, as servicer for a number of securitized trusts, may be engaged in "stealth foreclosures" on a grand scale.  Why do I think that. Well, I have one case that fits the bill, but that one case seems like it is probably one of many just from one securitized trust.  I have written before that Caliber Home Loans is effectively a servicing arm for Lone Star Funds, a private equity vehicle packaging up billions of dollars worth of troubled mortgages.  Loan Star has packaged lots of funds, but the most recent significant ones are LSF 8 Master Participation Trust and LSF 9 Master Participation Trust.

What is a Stealth Foreclosure, and why is it bad?  In a stealth foreclosure, a previous owner of a loan sells the loan during a foreclosure case. What should happen is the new owner should intervene as a party and replead the case. The new owner should also engage in loss mitigation (mortgage modifications, etc.)  Intervening in a mortgage foreclosure case and engaging in another round of loss mitigation naturally slows down the foreclosure process, but if that's a problem, there's no law saying any mortgage buyer has to buy loans that are already in foreclosure.  From the point of view of the homeowner, and probably society as a whole, slowing down the case is probably good, especially if the previous lender didn't engage in good faith loss mitigation in the first place - a practice which is all too common.  The stealth foreclosers may just be allowing the previous owners to run the foreclosure because they are lazy, but they also could be holding back because there could be problems with the transfers to the new owners. Problems with these transfers could give the homeowners defenses to the foreclosure - but not if they don't know the people foreclosing on them have already sold the loans.

To put things in perspective, understand how companies like the LSF Master Participation Trusts get a huge chunk of their loans. They buy the loans from HUD auctions.  HUD gets the loans when it pays off on FHA insurance contracts.  At this point, the original lender has been paid off and has avoided a large loss on the contract thanks to federal mortgage insurance.  When HUD auctions the loan the new buyers buy at a huge discount, perhaps paying 70% the original amount of the loan.  As a matter of public policy, HUD could have offered a 30% subsidy to the original lender to offer to the borrower, or HUD could have offered the 30% subsidy direclty to the borrower.  Insstead, the hedgefund owned mortgage pool gets the loan subsidy.  The loan pool then has the opportunity to cut a deal with the homeowner at a significant discount to keep the homeowner in the home.  Instead of doing so, they seem to be just going through with the foreclosures and putting the home on the market.  All of the delays, evictions and distressed sales are driving down the home values in many neighborhoods, even for folks that never got behind on their mortgages at all.   In other words, it isn't a hardship to require the new loan buyers to engage in loss mitigation, these buyers have already received a huge subsidy either at taxpayers' or mortgage insurance payers' expense.

To allow these opportunist mortgage funds to engage in stealth foreclosures continues the harmful economic trends that have become commonplace, the trend toward commonized costs and privitized profits.

If you have a loan that has been taken over by Caliber Home Loans which is already in foreclosure by another lender.  I suggest that you contact Caliber and demand that the new owner intervene in the foreclosure case. If they do not, you should file a complaint with the Consumer Financial Protection Bureau.  Tell the CFPB that your new and old lenders are conspiring to do a stealth foreclosure. contact a consumer attorney in your area through the National Association of Consumer Advocates at www.consumeradvocates.org or www.naca.net.    

What's the Story with LSF9 Master Participation Trust?

I have a foreclosure client who has a loan that was bought by LSF9 Master Participation Trust.  This is a weird case in a lot of ways, but when I Looked for information on LSF9 Master Participation Trust, I found from a Google search that it seems that a lot of problem loans from different servicers got swallowed up in this trust (which is serviced by Caliber Home Loans, Inc. That's not necessarily bad, as long as whoever buys an interest in the trust knows the true status of the loans and as long as the new servicer competently handles the loans.

Here's a blurb that I found on the web:

Lone Star Funds Lone Star Funds is a private equity firm that “seeks investment opportunities in developed markets that have suffered an economic and/or banking crisis.”24 The firm submitted winning bids for every pool offered in the June 2014 DASP auction, with a weighted average bid of 77.6 percent of the properties’ value.25 The 2014 fund that invested in the DASP loans, Lone Star Fund IX, has an investment period of 40 months.26 In July, Lone Star bought $500 million in nonperforming residential mortgages from JPMorgan Chase & Co.27 Lone Star Funds owns Caliber Home Loans, a full-service mortgage company and special servicer28 led by Joe Anderson, former Senior Managing Director at Countrywide Financial Corporation, the poster-child of the predatory, discriminatory29 subprime mortgage boom and overheated, destructive mortgage-backed securities markets that fueled the current housing crisis.30 Standard and Poor’s Ratings Services (S&P) has ranked Caliber Homes as Above Average as a US residential special and subprime mortgage loan servicer.31

source: http://homesforall.org/wp-content/uploads/2014/09/HUD.DASP_.RTC_.v15.pdf

So LSF9 Master Participation Trust is a pool of distressed mortgages put together by Lone Star funds.  The mover and shaker behind Lone Star Funds is a billionaire named John Grayken.  LSF9 ws the high bidder in an auction of  $3.8 billion in loans that the FHA had insured.  According to Bloomberg News:

June 20 (Bloomberg) -- Lone Star Funds, the private-equity firm founded by billionaire John Grayken, submitted winning bids for $3.9 billion of soured home loans sold this month by the Department of Housing and Urban Development.
It was the first time that a single bidder won each of the pools of loans offered in such a sale of debt previously insured by the Federal Housing Administration, HUD said today in an e-mailed statement. Dallas-based Lone Star’s bids on the 16 pools auctioned on June 11 averaged 77.6 percent of the estimated current prices of the homes and 65.8 percent of the unpaid loan balances, HUD said.

Source: http://www.bloomberg.com/news/articles/2014-06-20/lone-star-wins-3-8-billion-of-bad-fha-loans-at-auction

What this means is that if LSF9 bought your mortgage, they likely only paid $65.8% of the loan balance which was 77.6% of the value of the house.   (You see, these loans were upside down, but they aren't based on what Loan Star Funds paid.  In other words, Loan Star Funds and its subsidiary has room to cut you a deal on a modification and still make money.  Will they?  That's going to be up to them.   (This also means that the FHA may has paid the original owner a big chunk of money that came out of your mortgage insurance.  Assuming the new owner doesn't discount the principal of the loan, the benefits of this write-down go to the rich investors behind the Lone Star Funds.  Not only that but if you work out a deal to get the loan caught up at the previous rate and terms, Lone Star gets a windfall. Let's say you had a loan at 4% APR, if Lone Star only paid 65.8% of the principal, that's an effective rate of over 6%. If you had an 8% subprime loan, that's an internal rate of return of over 12% for Lone Star.  Elizabeth Warren is right, the game is rigged.)

A large portion of the loans in LSF9 appear to be from Chase, bought in a $500 million bulk deal.  

My client's loan was a Citimortgage loan.  Based upon the information that I've gathered, it appears Citimortgage  sold its interest to LSF9 Master Participation Trust while the loan was subject to a foreclosure lawsuit originated by Citimortgage. Instead of discontinuing the lawsuit, or substitutiong  LSF9 Master Trust as a plaintiff,  Citimortgage has continued the lawsuit under the representation that it is the owner of the loan without notifying the court that the ownership has changed.  

If you are in the midst of a foreclosure proceeding and your servicer gets changed to Caliber Home Loans, it may mean that your loan has been sold to a Lone Star affiliated trust.  If that happens your foreclosure case should not go through under the previously filed paperwork.  At the very least the change in ownership should be disclosed, and it may trigger another opportunity to modify your loan.  It also might be an unfair debt collection practice by the firm that is filing the foreclosure suit.  If you have this happen to you, contact me or find a local NACA consumer attorney near you at www.NACA.net.  

UPDATE 3/14/2017

Since I wrote this blog post a year and a half ago, it has been by far my most popular post, with over 14,000 hits. I have also gotten emails from lots of frustrated people trying to deal with LSF-9.  Most of these have either been people who are either trying to buy LSF9 properties or who are facing foreclosure on an LSF-9 mortgage.  I have this to say about each category:

IF YOU ARE FACING FORECLOSURE ON A MORTGAGE OWNED BY LSF9 Master Participation Trust, or maybe LSF8 or LSF10 or whatever, get advice from an experienced consumer lawyer IN YOUR AREA.  To find one in your area use the National Association of Consumer Advocates' Find an Attorney page.  I can't represent you if you are not a resident of Indiana.

 IF YOU ARE TRYING TO BUY A PROPERTY OWNED BY LSF-9 AND CAN'T FIND ANYBODY TO CONTACT, good luck, I can't help you.  You can write to Caliber. You can write to the lawyer handling the foreclosure case.   You can write to Lone Star Funds, the parent company, at the address below which I took from their website.

• 
  

• Lone Star Global Acquisitions, Ltd.

  • Lone Star North America Acquisitions, LLC
  2711 North Haskell AvenueSuite 1700 (and Suite 2150)Dallas, Texas 75204USA
  214-754-8300