Montana Bills Address State Supreme Court Decision

Montana Senate lawmakers have passed two bills to undo a landmark court ruling that benefited homeowners who sued big banks for mishandling mortgages. Such lawsuits often involve big banks making multiple fraudulent statements that lead distressed borrowers to assume their homes are being saved, while they’re actually sliding into foreclosure.

One of the bills would let banks off the hook for fraudulent statements. The other would limit the damages borrowers can collect.

In Montana, more than 1,000 homeowners have either inquired or filed complaints with the attorney general over similar banking issues.

Banks in these lawsuits argue that what they’ve told borrowers shouldn’t matter because there’s a written contract, the mortgage. Montana’s Supreme Court rejected that argument last May, essentially ruling that a bank couldn’t make fraudulent statements and then hide behind a contract when sued for those statements. Banks also have a duty to provide accurate information to borrowers.

That state Supreme Court ruling turned things around for Donna Peterson, a Helena homeowner whose Bank of America Corp. mortgage soured as she battled stage 4 cancer. Realizing she wouldn’t be able to work for several months during her cancer treatment, Peterson asked Bank of America for a forbearance, that is, a suspension of her monthly payments until she could return to work.

“They said, ‘Oh no, we never do that. We have a special assistance program for people in your situation. All you have to do is skip your next payment and submit all your paperwork,'” Peterson said.

Skipping the mortgage payment put Peterson in default, which BofA said would qualify her mortgage for modification. However, BofA would always claim there were a few things missing from her paperwork, which meant Peterson would have to resubmit, which happened again and again and again until finally she was so far from her initial filing that BofA said she would have to restart the process. Much of this confusion transpired over the phone in the kind of conversations over which the Legislature would prevent Peterson from suing.

“There were literally hundreds of phone conversations, and thank God I took good records,” Peterson said. “I would be going through the application process and they would assign somebody who worked for the office of the president of the bank to shepherd my application through the process. Then their phone number would change, and the person would disappear. There was no way to reach them.”

Later, after BofA attempted to foreclose on Peterson and she sued, the Helena woman’s lawyers discovered evidence that BofA had received the information it insisted Peterson hadn’t submitted.

Peterson’s attorney had put work on the case on hold last year until the Montana Supreme Court ruled on whether homeowners would have the right to sue over the fraudulent statements by banks. Five months after that ruling, BofA settled with Peterson.

For Scott and Kacey Olson, the assuring phone calls from BofA employees never matched what was actually happening with their loan.

Scott’s a plumber and Kacey teaches second grade in Billings Public Schools. In 2009, as the recession set in, Scott’s paychecks started getting smaller as the construction industry slowed. The Olsons called BofA, which doesn’t have a Montana office, to talk about restructuring their mortgage before things got too bad.

BofA told the Olsons they wouldn’t qualify for restructuring until they could no longer pay their mortgage. They were told to skip a payment, which they did. After that, they applied for restructuring, and the cycle of BofA assurances, followed by lost paperwork and more assurances and more lost paperwork, began.

At that point, Scott’s job had gone from full time, to part time then flat-lined. The Olsons were off their feet for only a few months, but by the time things returned to normal, the fees and payments past due on their mortgage were insurmountable.

“We started receiving notices of repossession and we were ‘assured by BofA’ that our modification would be ‘finalized’ soon and not to worry about repossession notices because we were in the ‘modification process,'” Scott Olson explained.

The couple finally hired an attorney when it became clear BofA would be foreclosing on their home in a month.

Deceptive practices by loan servicers are no small matter for Montanans. Complaints to Montana’s Republican Attorney General Tim Fox about non-bank mortgage servicers have been piling up since the Great Recession.

And even as the economy improves, those complaints about false information, lost paperwork and avoidable foreclosures continue.

Montana’s banking lobby is the driving force behind the bills currently in the state Legislature. It argues that their ability to speak openly while negotiating with customers is now too legally risky because of the state Supreme Court.

However, Fox’s office told The Gazette that the Montana banks really aren’t part of the problem. State banks have almost been left out of the equation entirely.

“Since autumn of 2010, we’ve received over 1,000 inquiries seeking assistance and over 500 written complaints. But only three of those were regarding mortgages from Montana-based banks,” said Fox spokesman John Barnes. “Of those three, the people who were eligible for help received it.

“That shows you that the banks here are doing things right,” Barnes said.

The problems have come in two waves. The first stemmed from the large mortgage servicers like BofA, Wells Fargo & Co., JPMorgan Chase & Co., GMAC Mortgage LLC and Citigroup Inc. engaging in “robo signing.”

Those companies — the nation’s five largest servicers at the time — had signed paperwork pushing thousands of homes into foreclosure nationally without reviewing the loans.

The robo-signing scandal resulted in a $25 billion settlement between the servicers and 49 states, as well as the federal government. Montana took $5.8 million from the settlement and in 2012 created “Keep My Montana Home,” a program to help homeowners with mortgages mismanaged by the nation’s five biggest servicers.

But the problem mortgages didn’t stop with the big five. In 2014, the same 49 states and the federal Consumer Financial Protection Bureau wrested a separate settlement from Ocwen Loan Servicing, a company with $488 million in Montana mortgages on its books. The states and CFPB said Ocwen, among other things, misled customers about alternatives to foreclosure, charged unauthorized fees and denied loan modifications to homeowners who were eligible. Some of the mortgages Ocwen mishandled were mortgages caught up in the earlier settlement with the big five mortgage banks and later bought by Ocwen.

In short, the companies servicing the mortgages changed, but the problems didn’t. And many of those problems, for Montana homeowners, originated in phone calls.

“It is the same,” said Julie Hope, who counseled consumers for Neighborworks in Helena. “They give you a name — a first name — you don’t know if it’s their real name, where they are. … “

The homeowners are usually a middle-class couple without enough money socked away to weather a layoff, a pay cut, a heath scare, a divorce.

“I think that’s everybody,” Hope said. “People aren’t ready for a financial disaster. Most of them don’t keep a savings for it. They should have it.”

That’s the Olsons, a middle-class couple knocked down by brief financial hardship. If you look at the beginning of the couple’s problems with BofA, it starts with a skipped payment of about $1,400 in May 2010. The following June, they managed an $800 payment, followed by a $1,000 payment in July. Essentially, they were $2,400 away from keeping up with their mortgage through the summer of 2010. But the fees and interest on the money past due, plus the mortgage money owed, was too much. Seven months later, even as Scott Olson’s work was starting to pick up, the couple was headed for bankruptcy.

“Bankruptcy was our absolute last resort,” Kacey Olson said. “We had excellent credit and made all of our payments to every creditor on time until unemployment struck. Having to file bankruptcy is not something we are proud of. In fact, it’s embarrassing, kind of our dirty little secret, but it was the only way we could keep from losing our home.”

The terms of their bankruptcy set a payment schedule for the Olsons, but they still have to pay their debt in full.

When the state Senate took up the bills to undo the Supreme Court ruling favorable to homeowners, the Petersons and Olsons of the world were mostly left out of the conversation. Republicans, including Billings’ entire GOP delegation, overwhelmingly supported the bills. Democrats voted no.

Senate Bills 280 and 281 were presented by Republican Sen. Eric Moore, a Miles City feedlot operator, as bad for small business, though he did acknowledge the Supreme Court’s ruling on a mortgage case as being the reason for the bills. Moore will present the bill Thursday to the House Business and Labor Committee.

“Anyone who has had a relationship, an operating loan, a home mortgage, a real estate loan, with a lender and has a long trusting relationship knows that it is important to have a free-flowing communication with you and your lender. You have to be able to talk on the phone, you have to be able to talk directly,” Moore said.

“You have to be able to do business, and under the Supreme Court case, if bankers are going to be concerned that their employees can get them into a legal liability suit, by a slip of the tongue or something said at a lunch meeting or over the phone when driving down the road, that’s going to cut off the free flow of communication. I don’t think that’s a good idea.”

Moore didn’t mention how the law change would affect the lawsuits brought by the Olsons and Petersons of Montana.

The Montana Bankers Association emphasized that loans are based on written documents. It didn’t mention the hundreds of complaints filed by Montanans accusing large mortgage-servicing companies of deception.

“There’s been a case that’s changed that under the statutes of frauds, and so we have come to the Legislature to discuss how that impacts your local community bank. Does it impact the large banks? It absolutely does,” said Aimee Grmoljez, a bank lobbyist.

There was no official testimony from BofA, which is not only involved in several lawsuits with Montana homeowners, but was also the defendant on the losing side of the Supreme Court’s decision.

BofA’s lawyer in the state Supreme Court case, as well as the case against Peterson and the Olsons, is Kenneth Lay. Lay testified in Helena in favor of the bills before the Senate Committee on Business and Labor. He did not disclose his relationship with BofA before testifying, opting instead to introduce himself as a “Helena lawyer.”

“Ultimately this is a bill that will help distressed borrowers by freeing up their banks to work with them in a situation of a loan workout, or a distressed borrowing situation without fear of liability, without fear of a lawsuit,” Lay said. “Sometimes people can’t pay their mortgage, and from a policy standpoint, when that happens, we want to encourage banks to work with a distressed borrower.”

Asked by The Gazette why he didn’t identify his role in the Supreme Court case, or his past representation of BofA, Lay had this to say.

“You need to shut up, dude. I’m not interested in answering any of your questions.”

The Olson’s lawsuit is still active, though the couple now has a modified mortgage that reduced their monthly interest rate but also extended the life of the mortgage to 40 years. That extension changes their total payments made over the life of the loan from $420,169 to $548,265.

After settling her lawsuit with BofA in October 2014, Peterson still has her mortgage at the giant bank. She would like to move to another bank, but her credit has taken a hit, and finding another lender will be tough.

Two months after her settlement, Peterson received a letter from BofA that still makes her shake her head.

“It said ‘We understand you’re having trouble with your mortgage,’ ” Peterson said. ” ‘We have special programs to assist you.’ “

“The message that I would like people to hear is stand up to these big banks,” she said. “They are stealing peoples’ homes and we’re letting them get away with it. And for the Montana Legislature, don’t pass those two bills, please.”