Legal actions have recently been taken by several states against mortgage servicers that have allegedly abused the loan modification process, while law firms representing borrowers have been aggressively filing class actions over alleged abuses. Large servicers are the targets of the state and private actions.
Ohio Attorney General Mike DeWine announced a settlement with American Home Mortgage Servicing Inc. on Dec. 12 expected to provide Buckeye state borrowers seeking loan modifications faster service.
The agreement requires American Home Mortgage to set up a timeline for all loan modification requests, to set up an internal review process for denied loan modifications, to drop a waiver requiring borrowers to give up all future claims against lenders or note holders and to temporarily suspend foreclosures and collection calls when a borrower applies for a modification.
Former Ohio attorney general Richard Cordray, newly installed as the head of the Consumer Financial Protection Bureau, sued the Texas-based loan servicer in 2009, claiming that it violated state law by overcharging borrowers while restructuring their loans. The lawsuit was filed in Franklin County Common Pleas Court.
Nevada Attorney General Catherine Cortez Masto amended the state’s suit against Bank of America Corp. on Aug. 30, 2011, in an effort to terminate the Countrywide settlement. A previous consent judgment indicated that the bank failed to provide modifications to eligible borrowers, didn’t make modification decisions within 60 days and initiated foreclosures even though loan modifications were pending.
The second amended complaint added allegations that BofA increased interest rates and monthly payments in violation of the consent judgment. It also alleges that BofA required extensive documentation for modifications despite the requirement of a streamlined modification process in the consent judgment.
Nevada also claims that BofA promised borrowers that trial modifications would be made permanent after making trial payments on time — then didn’t. BofA additionally told borrowers they qualified for modifications, even though they were denied.
“Based on the original and new violations, the state added a new request for relief — that the court find Bank of America to have materially breached the consent judgment, allowing the State to terminate the judgment,” the attorney general said in the announcement.
The Las Vegas Business Press reported in October that BofA asked the court to force Masto to prove that the company and Countrywide are in violation of the original consent degree before Masto’s amended lawsuit proceeds, while a story from the Las Vegas Review-Journal indicated that Masto had no plans to back off its lawsuit despite a decision by California’s attorney general to withdraw from multi-state negotiations with big banks over their foreclosure practices.
BofA is also facing legal heat from Ohio borrowers who claim their loan modification was all for naught.
Joseph and Jennifer Woodruff filed a class action lawsuit on Dec. 17, 2011, in Franklin County Common Pleas Court, Ohio, claiming that, in spite of successfully obtaining a loan modification and making the modified payments on time, BofA foreclosed on their home, the Columbus Distpatch reported. In fact, while in many instances, borrowers have claimed they received verbal assurances from lenders that foreclosures would not proceed while loan modification requests were being considered, the Woodruffs have a written document from BofA that said it would not foreclose if the payments were made on time.
BofA was also unsuccessful in its attempt to have the federal court in Massachusetts throw out a case against the banking giant by homeowners who claim that the bank improperly denied their home loan modifications under the Home Affordable Modification Program, Hagens Berman announced. A Massachusetts federal judge ruled against BofA’s motion to dismiss on July 7, 2011.
In suit papers, the homeowners claim that BofA claimed to have lost their paperwork, made false claims about the status of loans and took action to foreclosure without informing the homeowners of their options.
A spokeswoman in the Boston office of Hagens Berman Sobol Shapiro, the attorneys who filed the case, said the judge did restrict the class to only those homeowners with HAMP trial period plans.
BofA filed an answer to the complaint on Dec. 12.
In Stovall v. SunTrust Mortgage Inc., the federal district court in Maryland trimmed down a Maryland homeowner’s quest to find SunTrust liable on a number of legal claims in a case stemming from the denial of a mortgage loan modification and a foreclosure that was ultimately rescinded. The case is published.
The U.S. District Court for the District of Maryland threw out the claims alleging violations of federal Home Affordable Modification Program, Maryland’s consumer Protection Act, Maryland’s Consumer Debt Collection Act and various common law claims.
The court found that, with the exception of a claim for a violation of Maryland’s Mortgage Fraud Protection Act, Valerie Stovall had failed to state a claim upon which relief could be granted. Under that statute, a person may not commit mortgage fraud.
The court noted that although SunTrust wanted to limit the statute to only include loan closings, the plain language of the statute clearly indicated that post-closing servicing activity was clearly included. Stovall’s claims regarding SunTrust’s substitute trustee’s use of allegedly fraudulent affidavits was sufficient to plead a plausible violation of the act, the court said. Stovall alleged that SunTrust’s substitute trustee, BGW, filed and notarized documents with deliberate misstatements as to the documents’ true signatories.
HAMP, which launched in February 2009 by the Treasury Department, provided $75 billion for participating mortgage-servicing companies to help financially distressed mortgage-holders modify their mortgages.
In OneWest Bank FSB v. Stoner, Ohio borrower Carol Stoner will be granted a hearing on her claim that OneWest did not offer any evidence that it owned the note to her mortgage, lacking standing to foreclose on her Columbus home. The Ohio Court of Appeals overturned a decision by the trial court in OneWest’s favor. The trial court had decided that the foreclosure could move forward without an evidentiary hearing.
Stoner had filed a motion for stay of execution of sale pending HAMP loan modification & referral to mediation in November 2010 claiming that OneWest had violated HAMP provisions.
Wells Fargo was sued on Sept. 23 in federal court in California by borrowers claiming that Wells Fargo breached its contract and violated state law by granting homeowners reduced payments under HAMP’s trial modification requirement, but then denying the homeowners permanent mortgage modification.
Lead plaintiff, Amira Jackmon, also said that, after being denied the permanent modification but having been granted reduced trial payments and successfully making the trial payments, Wells Fargo foreclosed on her house. The attorneys in the case have asked for class action status.
Saxon Mortgage Services, Inc. and Ocwen Loan Servicing, LLC are facing class action lawsuits in federal courts in Michigan, Pennsylvania and Florida.
A class action complaint was filed on Sept. 14 in U.S. District Court for the Eastern District of Michigan on behalf of Michigan homeowners whose mortgages have been serviced by Saxon Mortgage Services Inc. and/or Ocwen Loan Servicing LLC, and, who, since April 13, 2009, have entered into a trial period plan contract with the mortgage servicers, who made all the payments required by the plan and complied with the requests for documentation and have not received or have been denied a permanent modification under HAMP.
A similar lawsuit was filed on July 21 in U.S. District Court for the Eastern District of Pennsylvania on behalf of all Pennsylvania homeowners.
The lawsuits allege that the defendants slowed or thwarted homeowners’ requests to modify mortgages in order to collect higher fees and interest rates associated with stressed home loans and, when the requests were denied, the homeowners did not receive timely written notifications explaining the reason for the denial.
A spokeswoman for the law firm, Berger & Montague, P.C. that filed the Michigan and Pennsylvania complaints, said they also filed a lawsuit in federal district court in Florida on Oct. 28 on behalf of Florida homeowners.
Saxon Mortgage Services was sued on Aug. 17, 2011, in federal district court in Brooklyn by a couple who seek class-action certification and claim that the mortgage servicing unit of Morgan Stanley failed to meet its obligations under HAMP, according to a story at IndiaWest. Ranujoy and Debora Pandit of Long Island, said in suit papers they asked for a loan modification when Mr. Pandit’s income from the construction business nosedived — but after one year and submitting three sets of documents, they were turned down for a loan modification and hit with thousands of dollars in late fees and other charges while Saxon was given millions of dollars in HAMP funding.
The Des Moines Register reported that a Pella, Iowa, borrower has sued CitiMortgage Inc. in federal court in Des Moines, accusing the company of foreclosing on homeowners even as they pursued loan modifications and seeking class-action certification. The lender is also accused of delaying the modification process by denying that it received borrower paperwork, losing paperwork as well as collecting balloon payments from homeowners that were illegally kept in “suspension accounts.”
