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Modification Lawsuits Address Host of Issues

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Recent issues addressed in loan modification litigation include second-lien subordinations, the handling of federally backed modifications and alleged false promises to provide modifications.

A settlement announced last month between Carrington Mortgage Services, the Ohio Attorney General and the Ohio Department of Commerce resolves a lawsuit filed on July 31, 2009. The assurance of voluntary compliance calls for a set of minimum mortgage servicing standards that include a single point of contact for modification prospects, specific modification timelines and a temporary suspension of foreclosures after a modification application is completed. Carrington will also implement an internal review process for denied modifications.

The settlement also calls for loan modifications to be provided to 29 Ohio borrowers for which Carrington acquired the servicing in 2007. Carrington didn’t admit to any wrongdoing.

A class action was announced in April by Berger & Montague P.C. against CitiMortgage Inc., which allegedly “systematically slows or thwarts homeowners’ requests to modify mortgages.” The complaint, filed in U.S. District Court for the Eastern District of Pennsylvania, represents borrowers who entered trial Home Affordable Modification Program modifications since April 13, 2009, but weren’t approved.

PNC Bank employed an arbitrary and blanket prohibition against subordinating second mortgages to new or modified senior mortgages secured by non-PNC liens, according to a class action (Case No. 1:10-cv-01090-AJT) announced in March by the law firms Webster Book LLP and Levetown & Jenkins LLP. The complaint, filed in U.S. District Court for the Eastern District of Virginia, alleges violations of the Bank Holding Company Act’s anti-tying provisions.

On June 14, a lawsuit field by New York borrowers who were denied loan modifications under HAMP was dismissed by U.S. District Court Judge Barbara Rothstein. The complaint, filed in March 2010, named as defendants Aurora Loan Services LLC, Secretary of the Department of Treasury Timothy F. Geithner, Federal Housing Finance Agency Acting Director Edward DeMarco and executives at Fannie.

The plaintiffs claim that they defaulted on their mortgages because their non-agency loans didn’t qualify for HAMP modifications even though the borrowers were qualified.

A class action was filed against SunTrust Mortgage Inc. and SunTrust Banks Inc. in U.S. District Court for the Southern District of California, plaintiffs’ counsel Keller Rohrback LLP announced Friday. The class includes borrowers who pursued mortgage loan modifications with the bank.

SunTrust is accused of violating consumer protection laws by promising modifications but failing to grant them or “unduly delaying modifications.” The law firm also claims that borrowers were repeatedly told that documents were lost, incomplete or defective while pursuing foreclosures as document demands shifted. In addition, SunTrust allegedly increased loan balances, imposed late charges and failed to maintain accurate records.

A HAMP class-action lawsuit filed in U.S. District Court for the Northern District of California against Saxon Mortgage alleges that borrowers were lured into trial modifications even though the servicer had no intention of completing permanent modifications, the Law Office of Peter Fredman and Daniel Mulligan of Jenkins Mulligan & Gabriel LLP announced in April. Lead plaintiff Marie Gaudin was allegedly promised a permanent modification if she completed three trial payments on time then denied a modification after making the payments.

“Saxon’s correspondence with Ms. Gaudin shows a bizarre pattern of inaccurate and irresponsible behavior on the part of a major global bank,” a statement from the plaintiff’s attorney said. “The company claimed that she did not make payments, while in the same letter actually acknowledged that she was current on all payments.”

Hurst, Texas, borrower Louis Suravitz filed a lawsuit against Bank of America Corp. after, he claims, the bank bungled communications, bombarded him with collection calls and gave him a modification that wound up increasing his monthly payments by $10, according to ConsumerAffairs.com. The problems started after Suravitz requested more time for payments following the death of his wife Susannah Boswell — a BofA employee.

A lawsuit filed by the United States against BofA alleges that the bank hindered an investigation by the Department of Housing and Urban Development, Bloomberg reported. The bank allegedly misled borrowers who were seeking a loan modification.

In South Carolina, Karen Miller claims that Wells Fargo & Co. told her not to worry about foreclosure while she was in the modification approval process then started a foreclosure, WSPA reported. So Miller, along with seven other clients, turned to attorney David Thomas to file a lawsuit.

ProPublica, a consumer-advocate publication that was funded by Herb and Marion Sandler after they cashed out of option-ARM giant World Savings just before the housing market collapse, claims that its investigation into six cases found that mortgage servicers who approve loan modifications have been changing the terms of the modifications after completion. Among the alleged biggest culprits are Bank of America Corp., JPMorgan Chase & Co. and Citibank.

Included in the offenses outlined by ProPublica were raising mortgage payments; filing foreclosures and claiming to have no record of the completed modifications.

The Better Business Bureau issued a warning in April to borrowers being solicited for national “mass joinder” lawsuits that promise to force mortgage servicers to cut loan payments. According to the BBB, the scheme seeks to collect up-front payments of $5,000 or more. Diversified Financial Protection Agency and Capital Debt Management were cited as culprits.

“Consumers told the BBB they paid the company for mortgage help, but received little or nothing in return,” the warning stated. “Company officials have blamed problems on partners — first in St. Louis County and later in California — who did not complete mortgage modification work.”

Arizona’s attorney general, Tom Horne, asked a Maricopa County Superior Court judge in April to prohibit Mediation Services and Metropolis Loans and operators Robert Daniel Hayes and Camerin Charles Hawthorne from unlawful modification practices. The defendants allegedly kept collecting advance fees of around $2,500 per borrower even after a federal law enacted on Jan. 31, 2011, prohibited up-front fees.

“The state also alleges that Mediation Services falsely represented that is was affiliated with consumers’ lender CitiMortgage, that consumers were pre-approved for a modification, and that attorneys would represent its clients in getting a loan modification,” a statement said. “The state further alleged that the defendant Hawthorn falsely represents that he, and his business The Bankruptcy Store, are certified by the Arizona Supreme Court as legal document preparers.”

Before that, Horne boasted about a default judgment against the operators of Guardian Group LLC — Bryan Prehoda and Luis Belevan. Included in the judgment was a $25 million civil penalty. The Scottsdale-based firm allegedly collected up-front fees of $1,595 from each of nearly 2,500 borrowers in exchange for promising to reduce principal balances by negotiating with lenders — though that never happened.

“Guardian Group misrepresented to consumers that it had multiple investors prepared to purchase mortgage notes, when no actual investors had ever invested money in the company,” the state claims. “Guardian Group falsely told consumers their file would be processed within 60 to 90 days and promised refunds that were never delivered.

A $2.2 million settlement was announced by the Federal Trade Commission in April with Kirkland Young LLC and a manager at the firm, David Botton. The agreement settles November 2009 charges that the defendants misrepresented themselves as mortgage servicers, lenders and affiliates and promised to obtain modifications.

Botton’s sister, April Botton Krawiecki; his father, Samy Botton; and Attorney Aid LLC were added as co-defendants after the initial complaint was filed. A $6.1 million judgment is suspended as long as the senior Botton pays $300,000; David Botton surrenders assets including a car, a condominium and a boat; Krawiecki surrenders a condominium; and the companies surrender $2.2 million in assets.

Federal Trade Commission v. Kirkland Young, LLC, a limited liability company, David Botton, individually and as a manager of Kirkland Young, LLC.

Civil Action No. 09-CV-23507, FTC File No. 092 3162 (United States District Court Southern District of Florida).

DOREEN EDWARDS, et al., Plaintiffs, v. AURORA LOAN SERVICES, LLC, et al., Defendants.
CASE NO. 1:09-cv-2100 BJR, March 4, 2010 (U.S. DISTRICT COURT FOR THE DISTRICT OF COLUMBIA).

In the Matter of the Unlicensed Activity of: The Guardian Group LLC, AKA The Guardian Group Fund, AKA Guardian Group, N.A., and Luis Belevan and Bryan Prehoda, Respondents.
Case No. 10F-BD048-BNK.

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