Courts Face Mortgage Modification Mess

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MORTGAGE EXPERT
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Lackluster results were again reported for government loan modifications as related litigation against leading lenders has continued. One mortgage banking executive has sued a servicer because he did not want his mortgage modified. Other lawsuits loading up the courts are those against loan modification firms accused of violating state and federal statutes.

Modifications completed by federally regulated financial institutions under the Home Affordable Modification Program were 56,378 during the fourth quarter, according to data from the Office of the Comptroller of the Currency. Volume eased from the third quarter’s 58,789 and was more than 21,890 in the fourth-quarter 2009. But the results were dismal given the 100,000-plus rate in the first and second quarters of last year.

In addition, however, banks and thrifts completed 152,318 non-HAMP modifications. While not as good as the third quarter’s 175,062 — it was better than 102,894 a year earlier and better than both quarters in the first half of 2010.

Chase Home Finance and its parent company, JPMorgan Chase & Co., are facing a class action lawsuit in federal court in San Diego. The plaintiffs allege they were repeatedly misled by the mega-banker when they sought to modify their mortgages.

Chase is accused of engaging in bad faith in mortgage loan modification negotiations by leading mortgagors to believe that it would permanently modify their mortgage loans upon successful completion of HAMP or other temporary payment plans.

The plaintiffs say Chase told them to stop making mortgage payments under the pretense that doing so was necessary to obtain a loan modification. They claim company representatives told them that not making the payments would not affect their credit rating and that Chase imposed obstacles to loan modification by repeatedly requesting financial information that had already been submitted.

The complaint also alleges that, while imposing “impossible and shifting demands,” Chase moved forward with foreclosure.

The 262-page complaint was filed on March 17 and includes claims of violation of state and federal law including the California Unfair Competition Law, the Rosenthal Fair Debt Collection Practices Act and claims for breach of contract, breach of the duty of good faith and fair dealing, promissory estoppel and unjust enrichment.

Andrew Weiss-Malik, a vice president for Texas-based wholesaler 360 Mortgage Group LLC, claims in a lawsuit filed in U.S. District Court in Utah late last year that Aurora Loan Services Inc. violated the Real Estate Settlement Protection Act and Truth in Lending Act when it overcharged him $20,000 on his adjustable-rate mortgage, American Banker reported. The plaintiff, who seeks class-action certification for his case, got the ARM in July 2008 but subsequently agreed to a loan modification fixing the interest rate — a move that caused him to lose out on a rate reduction that would have otherwise occurred.

US Bank and Bank of America are facing class action lawsuits in state court in Ohio over allegations of failing to fulfill HAMP obligations.

Defendants US Bank Home Mortgage, Bank of America and BAC Home Loan Servicing LP are accused of failing to offer permanent loan modifications to eligible borrowers participating in HAMP despite entering into agreements with these homeowners and accepting federal funds to participate the program. Under HAMP, the banks are to offer permanent affordable loan modifications to participating eligible homeowners that make payments during a three month trial period. The banks receive $1000 from the government for each HAMP modification.

Parma, Ohio homeowners Richard and Mary Hlavsa, who have a BofA mortgage, and a Cleveland homeowner with a US Bank mortgage said they entered into agreements with the banks to participate in the HAMP program, provided all necessary documentation, made the required payments but were not offered permanent loan modifications.

“Banks Like Bank of America and US Bank are not negotiating in good faith. In both of these cases the bank made written promises to the borrowers that the bank subsequently broke,” said Marc Dann, one of the attorneys handling the lawsuits.

The lawsuits ask that the Cuyahoga County Court of Common Pleas accept the cases as class action suits and declare that BofA and US Bank are in breach of contract and must offer permanent modifications in accordance with the agreements they have made.

Hagens Berman, a law firm which bills itself as having extensive experience in home foreclosure lawsuits, has joined a suit against Wells Fargo as co-lead counsel in a case alleging that Wells Fargo extracted payments from defaulted mortgage customers by falsely promising them the opportunity to retain their homes through an illusory forbearance-to-modification program.

The case, filed on April 19, 2010, in U.S. District Court for the Northern District of California, claims that the nation’s fourth-largest bank duped thousands of Californians into agreements that were designed to give the impression that the bank was offering a trial loan-modification program to assess their ability to make regular, reduced payments. In fact, the lawsuit claims that the bank never intended to modify the loan.

According to the suit, the vast majority of those who participated in the program lost their homes to foreclosure despite following the terms of the agreement.

“We are representing thousands of homeowners who fell victim to all sorts of nefarious lending practices, and this has to be one of the worst,” said Steve Berman.

On Jan. 3 in U.S. District Court for the Northern District of California, Judge Joseph C. Spero ruled against Wells Fargo in its motion to dismiss the suit.

Arizona-based Principal Reduction Group was shut down on March 11 by the state’s attorney general. Former attorney general Terry Goddard filed a lawsuit against the company, alleging that the company falsely claimed a success rate of 92 percent. According to the state, none of the company’s clients received a modification of their mortgages. As part of the settlement agreement, Principal Reduction Group LLC owner Brian Cutright must refund $5,500 to each client who did not receive a principal reduction.

New Jersey’s consumer protection agency filed violation notices against 11 companies the week of March 9, accusing them of offering mortgage loan modification services without being licensed. The complaints seek $55,000 overall in civil penalties from the businesses and nearly $126,000 in consumer restitution for the 65 consumers who sought mortgage modification services from the firms.

Businesses that perform mortgage modification services must be licensed by the state’s Department of Banking and Insurance.

The Federal Trade Commission has asked a federal judge to shut down an operation that allegedly blasted consumers with millions of illegal spam text messages, including many messages that deceptively advertised a mortgage modification website called “Loanmod-gov.net.”

According to the complaint, the defendant behind the operation, Phillip A. Flora, sent millions of text messages pitching loan modification assistance, debt relief, and other services. In one 40-day period, Flora allegedly sent 85 messages per minute, about 5.5 million spam text messages.

The FTC charges that Flora violated the FTC Act by sending unsolicited commercial text messages to consumers, and by misrepresenting that he was affiliated with a government agency. In addition, the FTC charges that Flora violated the CAN-SPAM Act – a law that sets the rules for commercial email. The FTC alleges that the e-mails failed to include a way for consumers to “opt-out” of future messages and also did not include the physical mailing address of the sender, as required by the law.

The action was filed in federal trial court in California in February.

Case Info:
Dianna Montez v. Chase Home Finance and JPMorgan Chase, No. 11CV0530 JLS WMC. Filed: March 17, 2011 (U.S. District Court, Southern District of California at San Diego).

Arizona, ex rel. Terry Goddard, Attorney General v. Principal Reduction Group LLC, et al.
CV2010-033072, Filed: Dec. 6, 2010; Settled: March 2011 (Superior Court of the State of Arizona, Maricopa County).

Federal Trade Commission, Plaintiff v. Phillip A. Flora, Case No. SACV11-00299-AG-(JEMx).
FTC File No. File No. 102-3005, Feb. 23, 2011 (U.S. District Court for the Central District of California).

Weiss-Malik v. Aurora Loan Services; CA No. 2:2010cv01058.
Filed: Oct. 25, 2010; (United States District Court, Utah)

Hlavsa v. Bank of America Home Loan Servicing and Bank of America.
Feb. 7, 2011; (Cuyahoga County Court of Common Pleas)

Goggans et al v. US Bank Mortgage, CA.

Filed: Feb. 7, 2011; (Common Pleas, Cuyahoga County).

In re. Wells Fargo, defendant.

Filed: April 19, 2010 (United States District Court for the Northern District of California).

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