Lawsuits accuse lenders of sabotaging mortgage changes

Cash-strapped homeowners struggling to get mortgage modifications are taking their frustrations to court, accusing banks and loan officers of misleading them or breaking their promises to help them keep their homes.

The lawsuits focus on what U.S. Housing and Urban Development Secretary Shaun Donovan has described as the heart of the government’s anti-foreclosure efforts: ensuring banks are working in good faith early on to help borrowers.

While the foreclosure process is less complicated in California than in states where home foreclosures must be approved by judges, the litigation shows that borrower-server relationships can also be contentious in the Golden State.

As controversy grew over the accuracy of foreclosure documents, Donovan said last week that the Obama administration’s top priority is “to ensure that steps are taken early in the process to keep people home. them rather than focusing only on the stages that come late in the process, in which it is much less likely that someone will be able to stay at home.

One theme of the homeowner lawsuits is that banks have denied permanent changes to borrowers who make their payments on time and otherwise delay termination of agreements.

For example, Jean C. Wilcox of Irvine sued EMC Mortgage Corp., accusing it of having shackled it for three years while making several offers to modify its loan of nearly $ 800,000, losing documents on several occasions. and never having the intention of permanently modifying the conditions of the mortgage. . A spokesperson for EMC declined to comment.

“It was just ‘stretch and pretend’,” Wilcox attorney Anthony Lanza of Irvine said. “And it was like the fax machine was connected to a shredder. “

Anaheim attorney Damian Nassiri said his firm had filed around 100 lawsuits against mortgage lenders since 2007. Earlier lawsuits alleged lenders had distorted mortgage terms or engaged in other practices. shady to force predatory loans to borrowers. Most of his company’s lawsuits now accuse lenders of dealing in bad faith with borrowers who have become behind on loans.

Worse, Nassiri said, in cases where foreclosure was inevitable, banks misled borrowers into agreeing to trial loan modifications. The intention, he said, was “to get some sort of money out of it” while delaying actions to seize the homes.

“There are too many bad debts for the banks to handle, and they can’t put all of these properties on the market all at once because we would have another depression,” Nassiri said.

Similar allegations of breaches of contract and acts of bad faith have surfaced in lawsuits across the country, said Anthony Laura, a Washington lawyer who represents lenders accused of wrongdoing and follows trends in wrongdoing. disputes.

Some lawsuits allege that the problem is so widespread that courts should certify plaintiffs as representing an entire class of aggrieved borrowers. The Wilcox lawsuit, for example, is seeking class action status on behalf of other California borrowers who have filed similar complaints against EMC.

Boston consumer attorney Gary Klein, a longtime mortgage lender antagonist, has filed class action lawsuits against the three major loan managers – Bank of America Corp., Wells Fargo & Co and JPMorgan Chase & Co. – and others.

On October 8, a multidistrict panel of federal judges consolidated eight of the lawsuits, including two from California, for pre-trial proceedings in federal court in Boston.

The lawsuits allege that the Bank of America’s extended trial loan modifications as part of the Obama administration’s anti-foreclosure plan were contracts the bank breached by denying permanent modifications to borrowers who have fulfilled their loans. obligations.

A spokeswoman for the Charlotte, North Carolina bank declined to comment.

In court documents filed in one of the cases, Bank of America said plaintiffs mistakenly believed they were granted secured loan modifications if they made three trial payments under the government program.

“A borrower must effectively to qualify, including income verification, a modified loan affordability analysis and other factors, ”the bank said in the documents.

Loan modification lawsuits add to huge legal headaches for banks.

The problems include demands from mortgage giants Fannie Mae and Freddie Mac, Newport Beach bond fund Goliath Pimco and the Federal Reserve Bank of New York for banks to buy back billions of dollars in delinquent loans that have been pooled to support loans. mortgage securities.

On another legal front, several giant real estate lenders were forced to halt evictions this month after lawsuits uncovered evidence that bank workers had signed thousands of court affidavits attesting that the foreclosures were justified – without read the accompanying documents.

Some analysts who follow mortgage loans have said that solving this problem could be solved with relative ease, as illustrated by Bank of America, the country’s largest lending service.

BofA issued a moratorium on pending foreclosures on October 1, but said last week it had lifted the lock. The bank said it would resubmit legal affidavits, corrected if necessary, on 102,000 loans in the 23 states that require court approval for foreclosures and that it would resume asking judges for foreclosure orders.

Bank of America still has pending evictions in 27 states that do not require court approval for foreclosures, including California, while it verifies compliance with applicable laws.

But banks can’t as quickly resolve lawsuits they face over allegations that they have lost or destroyed documents, failed to record payments, or misapplied to increase fees and additional interest.

In the Wilcox case, for example, EMC first amended its trial loan in late 2007 to lower its interest rate by 8.34%, according to its lawsuit, and it made the lower payments as agreed. . But over time, she said, she was tossed around among many EMC employees, who kept changing the rules for a permanent change.

EMC, which provided subprime loans as a subsidiary of bankrupt Wall Street firm Bear Stearns Cos., Is now a subsidiary of JPMorgan Chase. Chase spokesman Tom Kelly declined to comment.

Wilcox, a lawyer specializing in real estate transactions, said she started having difficulty paying the high-interest mortgage when her income as an individual practitioner declined in 2007, leading her to ask a loan modification. She accepted a job at a law firm where her income is stable but lower.

Wilcox said that starting in August 2008, she informed EMC four times in writing that she thought she was making false promises and demanded that she stop, thus laying the groundwork for one. legal claims in his lawsuit.

Wilcox’s lawsuit argues that EMC was too drowned in distressed loans to handle all of the foreclosures at once. Instead, the lawsuit alleges the company tricked borrowers into accepting trial loan modifications that it never intended to make permanent in order to maintain payments from properties.

She also claims that EMC misapplied some payments and delayed the processing of others, intentionally inflating its balance with unwarranted penalties and additional interest.

The company secretly recorded a notice of default while it was in the middle of its second trial modification, according to the lawsuit, and ultimately told it that its modification was denied because an unidentified investor in its loan had refused to accept it.

The lawsuit alleges breach of contract, deceptive business practices and fraud. He seeks a court order requiring EMC to grant swift changes to qualified borrowers and compensate aggrieved consumers.

Wilcox said she had about $ 250,000 in equity in her house when EMC first offered to modify her loan and that she would have sold the house if she had not relied on the promises of the house. company for permanent modification. Now it is not clear if there is any equity left.

“You are paying all that money,” she said, “and all the time your home keeps going down in value. “

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