Delinquent borrowers are attempting to stop servicers from foreclosing by targeting compliance mistakes, missing documentation and suitability. A California attorney recently touted his success at stopping lenders from foreclosing, while the government recently used litigation to prevent a Florida firm from promising it can stop foreclosures.
Maryland borrower Mountag Bah filed a December 2008 lawsuit in U.S. District Court for the District of Maryland Southern Division to block Wells Fargo Bank, N.A., from foreclosing. Bah, who claims he is not fluent in English, originally closed on a $142,327 first mortgage in June 1999 with Norwest Mortgage Inc. -- which was subsequently acquired by Wells Fargo and now operates as Wells Fargo Home Mortgage.
Bah claims he was not provided with a copy of the loan application or the Truth In Lending Act disclosure when he subsequently took out a $30,000 second mortgage with Wells Fargo. The lender allegedly did not attempt to qualify the borrower on the second mortgage.
While junior lien lenders are expected to keep copies of all qualifying documents in the file, it is not uncommon to rely on first-lien approval as the basis for a second mortgage approval. The case also draws attention to the issue of suitability.
Last month, the government was voluntarily dismissed by Bah, according to a notice that also highlighted recent attention by the U.S. Department of Housing and Urban Development and the U.S. Department of the Treasury to Wells Fargo's handling of foreclosures on its second mortgage portfolio.
Wells Fargo Home Mortgage Servicing, which was ordered by U.S. Bankruptcy Judge Randolph J. Haines to appear in the bankruptcy case of Bobbi Giguere, sent Senior Vice President Joseph Ohayon to face examination by the borrower. The borrower claimed she received a foreclosure notice when she thought she was in the process of being qualified for a loan modification.
The New York Times reported that during his testimony, Ohayon acknowledged a flaw in the company's communication process.
Wells Fargo said in a statement to MortgageDaily.com that it appreciates "the court giving us the opportunity to share our servicing practices, which include working with all customers facing hardships -- even if they declare bankruptcy -- until every reasonable option to prevent foreclosure has been exhausted."
Texas borrower Christina Melinder filed a lawsuit in Galveston County 56th District Court on July 27 against Ocwen Loan Servicing and the law firm of Brown & Shapiro, according to the Southeast Texas Record. She claims Ocwen didn't credit her for an $82,500 payment made in 2002 and continued to charge her interest in the higher amount as well as for improper fees. Melinder seeks a reversal of the foreclosure and monetary damages.
Irvine, Calif., attorney Douglas J. Pettibone claimed in a July 11 news release that he stopped Abex Mortgage Co. from foreclosing on borrower Shirley Jobe's mortgage based on lending practice violations. Abex originators were accused of churning, or repeatedly providing loans to an unqualified borrower with the primary goal of generating loan fees .
Pettibone claims he has tried in excess of 80 cases.
An analysis by the Associated Press of 38 mortgages servicers who received capital investments from the Troubled Asset Recovery Program indicated that at least 30 of the servicers -- including Bank of America Corp., Wells Fargo, JPMorgan Chase & Co. and Citigroup Inc. -- have been sued for harrassing borrowers, imposing illegal fees and charging for unneccessary insurance. Some of the litigation, which also alleged premature foreclosures, has been settled.
New York Supreme Court Judge Arthur M. Schack isn't tolerating mistakes by lenders attempting to foreclose on delinquent borrowers, the New York Times reported. He has denied 46 of the 102 foreclosure motions he has been presented with because of mistakes like presenting an affidavit signed in one state and notarized in another. One lender noted that the judge threw out cases even when borrowers had not responded to foreclosure motions, while he reportedly has referred to lenders as modern-day "Mr. Potters" from the film It's a Wonderful Life.
In foreclosure rescue cases, the Federal Trade Commission obtained a Stipulated Permanent Injunction and Final Judgment against Stephanie Dietschy, Darin Dietschy and United Home Savers LLC. The case was filed in U.S. District Court for the Middle District of Florida.
The defendants allegedly charged borrowers $1,200 with the guarantee that they would stop foreclosure -- even though they virtually never stopped foreclosure or issued refunds -- in violation of the FTC Act. A $4.1 million judgment will be suspended with the transfer of $21,694 that had been frozen by the court. The defendants agreed to stop the illegal behavior.
Mountaga Bah, et al., Plaintiff, v. Wells Fargo Bank, N.A., et. al., Defendants.
Case 8:08-cv-03429-RWT, Dec. 19, 2008 (U.S. District Court for the District of Maryland Southern Division).
In. re. case against Ocwen Loan Servicing
Case No. 09CV1306, July 27, 2009 (Galveston County 56th District Court).
Jobe v. Abex Mortgage.
Case No: CIVDS900081 (San Bernardino Superior Court)
Federal Trade Commission, Plaintiff, v. United Home Savers, LLP, a Florida limited liability partnership, Stephanie Dietschy, individually and as a partner, officer and/or manager of United Home Savers, and Darin Dietschy, individually and as a partner, officer and/or manager of United Home Savers, Defendants.
Civil Action No.: 8:08-cv-01735-VMC-TBM; FTC File No.: 072-3251 (U.S. District Court for the Middle District of Florida).