Report on the Institute for Foreclosure Legal Assistance

Transcription

1 Report on the Institute for Foreclosure Legal Assistance In direct response to the worsening foreclosure crisis in 2007, Paulson and Co. generously donated $15 million to the Center for Responsible Lending (CRL) to help struggling homeowners. With these funds, CRL partnered with the National Association of Consumer Advocates (NACA) to launch the Institute for Foreclosure Legal Assistance (IFLA). Recognizing that lack of access to quality legal services is one of the biggest factors in a family losing their home, a majority of these funds were directed to support direct legal assistance to homeowners. The IFLA program includes direct grants, intensive training, and a recoverable grants program to pay for litigation costs. IFLA and its grantees also leveraged almost $1 million in matching support from Equal Justice Works/AmeriCorps, the Oak Foundation, and the John D. and Catherine T. MacArthur Foundation for several hard-hit areas. As we are completing the second year of the three-year effort, CRL is reporting on the results of the IFLA program thus far. Bottom line: IFLA committed $10 million in multi-year grants to 52 organizations in 30 states. The grants -- ranging in size from $63,000 a year to $175,000 a year -- enabled these organizations to increase staffing, serve more people, and take on more ambitious litigation. Though most of these groups are only mid-way through their grant cycle, we are already seeing strong results: Borrowers are getting help Organizations reached more than 11,000 borrowers with initial interviews. From this group, 5,420 cases were taken on by IFLA-funded programs and 2,750 cases have been resolved. There are 2,670 cases still pending. Organizations are gaining strength - With IFLA funds, 35 organizations reported hiring 50 additional staff and expanding efforts to reach borrowers facing foreclosure. Legal staff are gaining expertise - More than 1,700 lawyers and paralegals attended trainings on how to more effectively respond to borrowers at risk of foreclosure. Communities are responding - Organizations are leveraging additional support, training pro bono attorneys to expand legal assistance, and working with other organizations to expand impact. Making an economic impact - CRL s research shows that every foreclosure results in $7,200 in lost value in neighboring homes. i By avoiding foreclosures, millions of dollars in potential lost equity is saved. We are grateful for the opportunity to launch this program which is providing relief to homeowners facing foreclosure across the country. The sad truth is that these efforts can only directly reach a small percentage of the millions of homeowners in trouble. However, by providing high-quality legal services and litigation support in combination with CRL s policy and advocacy work, we have begun to slow the tide of foreclosures and have helped stabilize communities.

2 Background: In 2006, CRL produced one of the first reports to warn of the impending foreclosure crisis, predicting that one out of every five subprime mortgages would end in foreclosure. ii At the time, these estimates were called wildly pessimistic. Unfortunately, the situation has become much worse than we predicted. The crisis has now spread beyond the subprime market, and CRL projects 2.4 million total foreclosures in 2009 and 9 million more through The spillover effect of these foreclosures will depress the value of nearby homes, causing 69.5 million homes to suffer price declines averaging $7,200 per home, with a $502 billion total decline in 2009 alone. iii Low-wealth homeowners and people of color, who received a disproportionate share of subprime mortgages, have been hit hardest by the foreclosure crisis. CRL was created in 2002 to protect homeownership and family wealth by working to eliminate abusive financial practices. We carry out this mission through research, technical policy assistance, coalition-building, litigation, and communications. We have been at the forefront of efforts to halt the rampant growth of abusive practices in the financial industry - in home loans, overdraft loans, payday lending, credit cards, and auto loans. Reckless lending practices in recent years have devastated the economy, costing Americans trillions of dollars in lost wealth and resulting in the weakest economy since the Great Depression. Creation of IFLA: When CRL received the $15 million investment to assist borrowers in distress, it reached out to the NACA, a nationwide organization of more than 1,500 consumer advocates, to help design and manage the program. NACA s members represent and have represented hundreds of thousands of consumers victimized by fraudulent, abusive and predatory business practices. As an organization fully committed to promoting justice for consumers, NACA's members are actively engaged in promoting a fair and open marketplace that forcefully protects the rights of consumers, particularly those of modest means. Together NACA and CRL organized the IFLA program to provide direct grants to enhance the capacity of legal aid organizations to serve homeowners in distress. IFLA also contracted with the National Consumer Law Center to provide a series of trainings for grantees, especially the newly hired attorneys. Goals of the IFLA Program: 1) Increase the supply of attorneys available to represent homeowners threatened with foreclosure. Create a grant program that funds public interest attorneys to do foreclosure defense work. 2) Maximize the effectiveness of attorneys representing homeowners. Create a loan fund to cover costs of aggressive and creative litigation by nonprofit and for-profit litigators. Create a national litigation center with attorneys available to co-counsel. Create a centralized database and provide enhanced technology for attorneys. Provide expert testimony support. Hold national- and state-level trainings to build a coordinated litigation effort. 2

3 Progress Report: Goal 1: Increase the supply of attorneys available to represent homeowners threatened with foreclosure. Create a grant program that funds public interest attorneys to do foreclosure defense work. Getting started The original goal of the IFLA program was to support direct legal assistance to borrowers in 10 or more states to fight foreclosure. Each organization was given a three-year grant, contingent on meeting certain benchmarks, to allow it to make a long-term commitment to foreclosure defense. IFLA disbursed the money to organizations through two grant cycles. The Recoverable Grants program was created to fund costs associated with litigation brought to address systematic abuses. Lastly, IFLA created a network of attorneys working on foreclosure issues and provided them with training and tools to improve their work. To help monitor the progress of the program, IFLA established an Advisory Committee, made up of representatives from NACA, CRL, Paulson & Co. as well as national leaders such as AARP and National Council of La Raza. Here is a report on each aspect of the program. Moving money into the field First grant cycle IFLA announced a request for proposals (RFP) in November 2007 to provide three-year grants to nonprofit legal services organizations with existing foreclosure defense programs. The RFP was distributed widely among state and local legal aid and consumer protection organizations. Seventyseven proposals from 36 states were received, requesting more than $24 million in assistance. A committee reviewed the proposals with emphasis on geographic need, established program and litigation experience, a commitment to community-focused organizing, and demonstrated outreach with direct service providers and other local stakeholders. In March 2008, IFLA committed three-year grants equal to $6.5 million in funding to 27 non-profit organizations in 19 states. The funds are distributed over three years to provide sufficient time to train new attorneys, and for the litigation brought by those attorneys to make an impact. With the first grant cycle, we reached some of the hardest hit areas in the country, especially large urban areas such as Philadelphia and Chicago. Multiple grants were also provided to organizations in Ohio and California, which are facing some of the highest rates of foreclosure in the country. See attachments for full listing of grants. 3

4 Second grant cycle In September 2008, IFLA announced a request for proposals for the second round of grantmaking. Seventy-two proposals were received representing 31 states and $20 million in requests for assistance. The Advisory Committee reviewed the proposals with an emphasis on increasing capacity in areas with the greatest need as well as reaching communities that did not receive funding in the first round. In February 2009, IFLA announced a second round of three-year grant commitments to 9 organizations in 8 additional states with $2.4 million in funding. With these grants, IFLA now covers 36 organizations in 27 states and the District of Columbia. See attachments for complete listing of grants. 4

5 Goal 2: Maximize the effectiveness of attorneys representing homeowners. Create a recoverable grant fund to cover costs of aggressive and creative litigation by non-profit and for-profit litigators. Create a national litigation center with attorneys available to co-counsel. Create a centralized database and provide enhanced technology for attorneys. Provide expert testimony support. Hold national- and state-level trainings to build a coordinated litigation effort. Recoverable Grants Program IFLA established a Recoverable Grants Program and committed up to $1 million to pay for litigation costs of private attorneys or non-profit legal organizations who are engaged in foreclosure litigation that will have a broad impact. Many legal organizations are not able to enter into impact litigation due to the costs associated with lengthy legal battles. The goal of this revolving fund is to help absorb the out-of-pocket costs of these expensive and time-consuming cases. It is important that these organizations have the resources necessary to bring potentially precedent-setting cases to court. In the Recoverable Grants Program, one-time grants of up to $50,000 are awarded to cover out-ofpocket litigation costs such as: deposition expenses, expert fees, investigation expenses for impact litigation and class actions. If a monetary award is received, these funds will be repaid and funds will be redistributed to new applicants. Recoverable grants are awarded on a rolling basis and fund new cases or existing cases that cannot otherwise be brought effectively without additional resources. To date, IFLA has awarded 15 recoverable grants in 13 states, totaling $359,900 in funding. Equal Justice Works/AmeriCorps Fellowships & Other Funding In 2009, IFLA partnered with Equal Justice Works/AmeriCorps to create eight legal fellowships to help expand our efforts to provide legal support in some of the hardest-hit communities across the country. The goal of the fellowships is to save as many homes as possible within a calendar year. The organizations receiving fellows are located in Washington, DC, Atlanta, Milwaukee, Seattle, Chicago, Brooklyn and Kentucky. IFLA granted $100,000 in grants of $12,500 to eight organizations, six of whom were already grantees. This support leveraged an additional $300,000 in matching support. IFLA also provided two additional grants of $100,000 each to programs in Philadelphia and Chicago to allow these organizations to receive matching grants from Oak Foundation and the John D. and Catherine T. MacArthur Foundation. With IFLA funding and the matching grants, these programs have been able to take an innovative approach to fighting foreclosures in their 5

6 communities. These programs are discussed in more detail in the Impact for Organizations section below. See attached financial report for a complete breakdown of grant distribution to date. National Litigation Center With support from IFLA, CRL has significantly strengthened its litigation program which brings impact litigation to fortify consumer protection law and directly protect consumers, as well as supports attorneys general and other law enforcement agencies. The primary goals of the litigation program have been to support litigation to mitigate the effects of predatory lending on families and communities and bring forwardlooking litigation to create precedent to prevent the next predatory lending crisis. Over the past two years, the CRL litigation program has co-counseled cases with five IFLAsupported legal aid offices in four different states. These cases have involved a diverse range of issues: -- CRL, joined by IFLA grantee Mid-Minnesota Legal Services and a local law firm, filed a class action on behalf of thousands of Minnesotans facing foreclosure alleging that the mortgage industry s failure to inform borrowers who owns their loan violates Minnesota foreclosure law. The case divided the Minnesota Supreme Court, with the majority ruling that the industry s practice was legal although not desirable. -- CRL, joined by IFLA grantee South Brooklyn Legal Services, represented an elderly Brooklyn homeowner who was sold a payment option adjustable rate mortgage when there was no way he could afford the amortizing payment. The case was based on CRL s position that New York consumer protection law prevents lenders from putting homeowners into unaffordable loans. The case settled before the judge ruled on CRL s legal theories. -- In several cases, including ones co-counseled with IFLA grantees Pine Tree Legal Assistance (based in Maine) and Mid-Minnesota Legal Services, CRL has sought to ensure that fringe subprime lenders cannot prey on desperate borrowers facing foreclosure by evading the provisions of the federal Home Ownership Equity Protection Act. CRL s involvement in the Minnesota case has already resulted in a strong pro-consumer ruling from the U.S. Court of Appeals for the Eighth Circuit. CRL has recently settled both cases with non-confidential, publicly available settlements that will allow other advocates to assess high values to their cases. -- In several cases, including ones co-counseled with IFLA grantees Legal Services of Northern Virginia and Staten Island Legal Services, CRL has represented borrowers who were put into foreclosure even though they had entered into loan modification agreements. 6

7 These lawsuits have stopped the foreclosures against the represented homeowners, and CRL continues to work on litigation strategies to attack lenders failure to modify loans and honor those modifications. In addition to the Minnesota HOEPA case discussed above, CRL s litigation team was lead counsel in two other federal circuit court appeals. One case challenged an equity stripping scheme of a Virginia foreclosure rescue scammer and a second involved a subprime lender s attempt to throw out the predatory lending lawsuit of a Mississippi homeowner and instead force the case into a private arbitration proceeding. In addition to co-counseling, CRL s litigation team has collaborated with several IFLA grantees on legal strategies and responding to lenders legal tactics. Database IFLA created a database to serve as an information hub for attorneys working on foreclosure cases. Launched in the Fall of 2009, the IFLA Pleadings Database currently houses over 2,700 foreclosure-related documents. This password-protected site will allow any grantee to research virtually all of the relevant foreclosure casework to date. This site is constantly updated with new pleadings from IFLA grantees as well as NACA Mortgage listserv members as they become available. Furthermore, IFLAdatabase.org has become a virtual hub of the general grant program including such features as blogs, online forums, Predatory Story Repository (over 300 stories) and video training library. Training IFLA is also providing intensive training to ensure that attorneys are equipped to respond to the needs of families facing foreclosure. IFLA contracted with National Consumer Law Center (NCLC), a well-respected organization which assists consumers, advocates and public policy makers to use consumer law on behalf of low-income and vulnerable populations seeking economic justice. NCLC works on issues of consumer fraud, debt collection, consumer finance, predatory lending and sustainable home ownership programs. These training events take two primary forms: interactive Internet-based learning sessions ( webinars ) and in-person training conferences. Over the past two years, IFLA has hosted or funded 26 programs that trained more than 1,700 attorneys and paralegals. See attachments for a complete list. 7

8 In-person trainings All of the IFLA-funded attorneys from around the country are invited to training conferences for one-to-two days of intensive instruction from expert presenters. Presenters at these trainings have included local elected officials, law school faculty, and judges. The trainings provide the opportunity for IFLA attorneys to learn from each other, hear best practices in the field and build a community of trained professionals. At right, NCLC presents at a training in Chicago. These conferences have included an intensive introduction to predatory lending law (Boot Camp) to give attorneys the tools to attack illegal lending practices; strategies for engaging other members of the community (such as housing counselors, community organizers, and governmental officials); an intensive introduction to bankruptcy law to help homeowners whose mortgage default can be cured through a bankruptcy payment plan; and a training on how to use pre-foreclosure mediation between borrowers and lenders to achieve affordable loan modifications. Webinars and Teleconferences The webinars, which typically run about two hours, are led by some of the nation s leading experts on mortgage and foreclosure law. Over the past two years, IFLA has hosted nine webinars on a wide range of topics. See attachments for complete listing. At right, sample slide from presentation. A review of the Obama administration s loan modification program and associated policies INSTITUTE FOR FORECLOSURE LEGAL ASSISTANCE In 2009, IFLA hosted webinars that discussed: identifying mistakes in mortgage payment records that can wrongly cause lenders to commence foreclosure; obtaining loan modifications under the Obama Administration s Making Home Affordable Program; comparing recent changes and best practices in state foreclosure laws; and detailing foreclosure mediation programs across the country. The presenters for these webinars included staff from NCLC and a professional accountant with years of experience in reviewing mortgage payment records. 8

9 Impact Report What difference has the funding made? It is important to go beyond the numbers to understand the more personal impact that the program has had on individuals, organizations, and communities. At right, a borrower in Oregon whose home was saved. (Photo courtesy of Oregon Law Center ) Impact on individuals The organizations which have received funding through the IFLA program have reached more than 11,000 homeowners. More than half of these homeowners received simple legal advice or a referral to another, more appropriate agency. More than 5,000 of the homeowners were accepted as clients. Here are two stories that illustrate the challenges people face and how legal assistance is helping them recover from the devastation of predatory lending. These two homeowners are representative of the thousands of individuals and families whose equity was stripped through predatory lending practices that never should have been allowed to exist. Client name: A. J. A. J. is an elderly African American woman who lives in Los Angeles. She had lived in her home for more than 30 years. She has a mild form of Alzheimer s disease and her only source of income is social security and a retirement pension. An aggressive con artist convinced A. J. to refinance her reverse mortgage and give the con artist the proceeds. She received nothing in return. With her extremely limited income, she was given a $352,000 loan with monthly payments of $700 greater than her monthly income and a balloon payment of $214,000. The loan required no documentation and the income information was falsified without the borrower s knowledge. With support from the Legal Aid Foundation of Los Angeles, A. J. s case is currently being litigated and the foreclosure has been prevented. Client name: A.C. A. C. is a single African American woman in her early 40s with a child. She is employed, making approximately $15,600 in combined annual employment income and public benefits. After renting for 18 years, she was given an opportunity to purchase her home. Since she had a weak credit history, several lenders rejected her application. She saw a flyer from First Service Financial Group, which she believed was a lender. They offered her a loan, but only if she also purchased costly home repairs from them, which inflated the loan by $15,000, to $56,000. The loan also was an adjustable rate mortgage with an initial interest rate of 8.5% that rose to 11.5%. The home repairs were never completed despite repeated calls to the lender. When she lost her job, she missed a few payments and began to receive default letters 9

10 from the mortgage servicer, People s Choice. She worked out a repayment plan which required an upfront fee of $2,500 to stop foreclosure. She managed to send this amount, but the company began foreclosure proceedings anyway. With help from the Legal Aid Society of Cleveland, A.C. was able to obtain a settlement that changed the adjustable rate mortgage to a fixed rate mortgage and lowered the interest rate to 7.16% with monthly payments of $ This settlement enabled A.C. to remain in her home. Impact on organizations In a number of cases, IFLA grants have transformed the work of the recipients, enabling them to focus more resources toward averting foreclosures in their communities. Here are two examples of organizations that have used the IFLA funds to leverage additional funds from other sources to have a greater impact. Community Legal Services of Philadelphia (CLS) CLS received two grants from IFLA - both in the amount of $100,000 per year for three years -- one for the core foreclosure defense program and the other for a collaborative foreclosure prevention project, Saving Homes, Saving Neighborhoods. (SHSN). With the first grant, CLS hired an additional attorney to handle its increasing volume of clients. The second grant helped the organization to match a challenge grant from the Oak Foundation. SHSN targets two areas of Philadelphia for intensive foreclosure prevention efforts coordinated among several agencies. The neighborhoods were identified because they had high levels of subprime mortgage lending and high foreclosure rates, but with a relatively low rate of abandoned/vacant properties. The goal was to select neighborhoods where early intervention could prevent an epidemic of abandoned properties. The project work is broken into three parts: outreach, housing counseling and legal assistance. Two other organizations are providing the outreach and counseling, while CLS is providing the legal services. After CLS established SHSN, the City of Philadelphia began an innovative foreclosure mediation program. This program requires a court hearing before any owner-occupied property can be foreclosed on. CLS reviews the court provided hearing lists, identifying properties in the target areas and attending the court dates to meet and represent the homeowners. By being proactive in seeking out homeowners at risk of foreclosure and providing them with services and legal support early on, the program has been effective in averting a number of foreclosures. A major roadblock has been the lack of cooperation among servicers in providing loan modifications. However, given this challenge, the program has been effective. Legal Assistance Foundation of Metropolitan Chicago (LAF) LAF received a $200,000 grant from IFLA and with these funds, LAF sought and received matching funds of $200,000 from the John D. and Catherine T. MacArthur Foundation. With the combined funding, LAF was able to create three teams, each consisting of one attorney and one paralegal, each team working closely in one of three Chicago neighborhoods - South Side, West Side and Northwest Side. Each team focuses on providing foreclosure prevention services to distressed neighborhoods, which are already receiving comprehensive services under MacArthur Foundation s New Communities 10

11 Initiative. Each team works closely with housing counseling agencies, churches, social service agencies and other community groups to assist families to prevent foreclosures. With the IFLA-MacArthur funding, amounts recovered or saved for homeowners rose from $1.9 million in 2008 to $3.5 million in Impact on communities The IFLA grants have had an impact far beyond the direct legal assistance to individuals and the strengthened capacity among legal service organizations. Here are two examples an organizations which are having an impact throughout their state. Pine Tree Legal Assistance (PTLA), Portland, Maine With the IFLA funds, Pine Tree has hired attorneys to litigate foreclosure cases and reached out in a variety of innovative ways. PTLA has been instrumental in helping create a mediation program in Maine as well as developing training materials and in hosting the training for the mediators. PTLA helped created networks of consumer advocates such as a Maine Housing Counselor Network that helps to more effectively coordinate the efforts of counselors. PTLA hosted a number of homeowner clinics throughout the state and has developed a system for previewing loan files to spot systemic legal problems on the front end, before homeowners are referred to mediation. Housing and Economic Rights Advocates (HERA), Oakland, CA The IFLA funding has enabled HERA to support the work of several other legal aid agencies in California. HERA helped California Rural Legal Assistance (CRLA) to review mortgage loan documents, providing legal research and advice to staff on potential legal claims for local residents facing foreclosure. HERA is also co-counseling with CRLA on a foreclosure rescue scam case, a predatory mortgage/elder financial abuse case, and a predatory lending case on behalf of a deaf and mute homeowner. HERA has also worked with Legal Services of Northern California by providing legal advice and research to staff on predatory lending issues and is co-counseling on three cases. Lastly, HERA is cocounseling with Bay Area Legal Aid to support its predatory lending litigation. By working with other legal aid organizations, HERA has leveraged its IFLA funding to become a support center for other legal services programs in its region, training other attorneys and extending the reach of foreclosure defense to more communities. Impact on the economy In May 2009, CRL published a report entitled, Soaring Spillover: Accelerating Foreclosures to Cost Neighbors $502 Billion in 2009 Alone; 69.5 Million Homes Lose $7,200 on Average. This paper uses previous research to quantify the lost equity in homes that are located near foreclosures. The loss of household wealth leads to the erosion of consumer confidence, which has led to the current economic recession. While it is difficult to identify exactly the number of foreclosures that have been prevented with IFLA funding, IFLA grantees report that more than 2,700 cases have been resolved. These resolutions result in millions of dollars of equity saved in surrounding homeowners and communities. We hope that in some cases, the downward spiral of foreclosures, abandoned houses and declining property values has been stopped or slowed. 11

12 In addition, for each family that is able to stay in its home, children are able to maintain stability and stay in school; the tax base for the local government is preserved, not eroded, and vital governments services can continue. A whole host of positive benefits comes from the prevention of foreclosures. Conclusions While the efforts of IFLA grantees alone are not enough to stem the flood of foreclosures, legal aid attorneys are the first line of defense in this worsening crisis and IFLA funding has greatly enhanced legal foreclosure defense and the consequent retention of homeownership around the country. This would not have been possible without the foresight and financial support of Paulson and Co. to create the IFLA program. We invite any questions or comments that you may have. We hope that we can continue working together to have even greater impact on individuals, organizations and communities. i Center for Responsible Lending, Soaring Spillover: Accelerating Foreclosures to Cost Neighbors $502 Billion in 2009 Alone; 69.5 Million Homes Lose $7,200 on Average. (May 2009), at ii Ellen Schloemer, Wei Li, Keith Ernst, and Kathleen Keest, Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners, Center for Responsible Lending (December 2006), at iii Center for Responsible Lending, Soaring Spillover. 12