While FHA Continues to Ignore the Protecting Tenants at Foreclosure Act, Congress Extends It

Posted on July 23, 2010 by Robert Doggett, Texas RioGrande Legal Aid

As a part of the new financial overhaul law enacted this week (aka Dodd-Frank Wall Street Reform and Consumer Protection Act) there were a few little acorns tucked away in the 848 pages of the act.  One of them extended the Protecting Tenants at Foreclosure Act (PTFA) – instead of it vanishing at the end of 2012, it now is alive until the end of 2014. See Section 1484 of H.R. 4173 at page 829.  For more on the law go here.

This extension is a big deal for tenants of foreclosed properties.  Thus far the industry and its vendors have ignored the Act (it became effective May 2009) because they would much rather evict everyone in the home and sell it vacant.  Article here.  The industry has stalled in implementing the Act and misled the public and tenants regarding the requirements of the Act.  Article here.  It might have been because the law sunseted at the end of 2012 and they thought by the time there were enough lawsuits, media stories and complaints to force the industry to comply, the law would be gone.  Not any more.

Unfortunately the Federal Housing Administration (FHA), an agency of HUD, is not unlike the industry.  Just like entities run by the feds, e.g., Fannie Mae story here, FHA has not considered the  PTFA to be worthy of compliance when it comes to the implementation of the Neighborhood Stabilization Program (NSP).  This program was established to stabilize communities that have suffered from foreclosures and abandonment.  See description here.  NSP authorizes recipients (states, nonprofits and others) to acquire foreclosed properties and then resell them to qualified buyers.  Recipients target certain areas that have concentrations of foreclosures in order to stabilize the rest of the neighborhood using NSP funding. 

NSP funds may only be used to purchase foreclosed properties for which PTAF was complied with during the foreclosure.  This is important, as reports have shown that PTAF is widely ignored by lenders.  Given this requirement, Texas (rightly) requires that lenders certify that they followed PTAF.  (Other states have been willing to look the other way on lender PTAF compliance.  This ignores the intent of PTAF and NSP rules.)  HUD continues to refuse to certify that they follow the law:

“Although some ISIIs [Initial Successor In Interest, i.e. foreclosing lenders] may be willing to certify to compliance with the Act, HUD suggests that it is more appropriate to provide grantees with the necessary information for grantees to make their own compliance determination.” HUD’s April 6, 2010 letter here.

Kevin Jewell, Texas Low Income Housing Information Service, July 21, 2010, article here.

What does this mean?  HUD is not willing to certify that it followed federal law — it is king, and what it does is legal.  HUD forecloses on properties, and it can take actions to ensure compliance with PTFA to protect tenants from improper eviction.  PTFA incidentally is one page long.  You would think it could manage to comply with this.  HUD obviously is concerned that it is not following the law, and does not want to take actions to correct the problem.  So, they are passing the buck by “provid[ing] grantees with the necessary information” and let them decide if the law was followed.  Of course HUD and its vendors are in the best position to know whether they evicted a tenant improperly or not after a foreclosure, not some subsequent participant in NSP.

This is what drives people to the tea party movement — when the government creates and enforces laws that it is not willing to follow itself.  The result of this arrogance is no big deal – tenant families across the country who had been paying their rent are forced to relocate earlier, often without enough funds for the move, in the middle of a school year, and without having time to save money for deposits.

Filed under: National Foreclosure News | Leave a Comment »

Clearer Loan Documents Will Not Cure the Financial Industry’s War On Borrowers

Posted on July 22, 2010 by Robert Doggett, Texas RioGrande Legal Aid

If you’ve ever applied for a credit card, a student loan or a mortgage, you know the feeling of signing your name to pages of barely understandable fine print,,, but what often happens as a result is that many Americans are caught by hidden fees and penalties, or saddled with loans they can’t afford.

Barack Obama, signing the Dodd-Frank Wall Street Reform and Consumer Protection Act, as reported in the New York Times here.

The President said the law would crack down on abusive practices in the mortgage industry, simplifying contracts and ending hidden fees and penalties, “so folks know what they’re signing.”  Id.  Some are already saying the law will do little to prevent the next crisis because it does not go far enough (e.g., CNN Money).  Maybe so.  (It certainly did nothing to help car loan borrowers.)

Consistently, people tell borrowers to read their loan documents, ask questions, and get informed before they sign anything.  For many reasons, most people don’t.  Well some of the reasons are obvious: the language is confusing, the language is poorly written, the language is in an unreadable font.  Maybe this new law will address these issues so folks know what they are signing as promised by the President.  But these reasons are not the main reason people don’t read the documents.  

People don’t read their loan documents because they cannot be changed.  If you want the house, sign the documents.  Making things clearer is nice, but it does not fix the incredible overreaching lenders and their lawyers impose on borrowers in their loan documents, and believe me, ignorance is bliss.

As the President was signing the Dodd-Frank Wall Street Reform and Consumer Protection Act, I was reviewing closing documents to refinance my own home.  I read them all, as I usually do, and just try to bite my tongue every time I see another waiver, another trap for me, another way out for them.  Then I got to the “Compliance & Authorization Agreement” which states in part:

Borrower(s) agree … by completing and executing … documents as may be deemed necessary or desirable in the reasonable discretion of Lender, including, without limitation, execution and delivery of the following:

…

3. Any additional or different documents, as may be requested or required by anyone to whom this Loan is being transferred or who otherwise obtains any interest in this Loan.

…

[F]ailure of Borrower(s) to comply with their obligations under this Agreement within seven (7) days of request by Lender SHALL CONSTITUTE A DEFAULT UNDER THIS LOAN ….

Compliance & Authorization Agreement (proposed by Capstar Lending LLC) here.

I have obtained many home loans in the past, but this provision in one of the many loan documents was new.  I could read the provision well enough.  I understood the language and asked questions.  I was called by three people and told not to worry.  I was told this is for minor things.  I was told that this would not authorize a substantive change to the loan documents.  I was told this is new.  I was told that this protects the lender.  I was told that all lenders have provisions like this in the loan documents nowadays.

First, nothing they told me was in writing and even if it was, it is irrelevant (another document demanded by the lender is an agreement that no oral or other representations make any difference – the loan documents control, and in Texas the Deceptive Trade Practices Act that prohibits oral misrepresentations rarely applies to lending).  Second, what is a minor thing?  The provision does not have any limiting language — it does not say that substantive terms of the loan cannot be changed for example.  It does not say they cannot require disclosures, tax returns, or other items ten years from now when the loan is not even in default.  It of course may not be the original lender that wants an “additional or different” document signed, but another transferee of the loan 20 years from now that has developed a new trick, trap or scheme to tweak borrowers.  The most honest answer was that this provision protects the lender.  I believe that.  What protects me?  What does reasonable discretion mean?  Who can afford to sue over that phrase?  I was told everyone is doing this provision these days.  So what. 

The lender refused to make any changes to their form agreement citing their attorney as authority.  One attorney for Capstar Lending (whose mission is “to serve our customers with honesty, integrity and competence” here) allegedly signed the form himself for a loan he obtained.  Happy for him.  It appears that the industry and their attorneys have yet to realize that overreaching, unfair documents make the entire agreement suspect.  Colleagues thought I was right to object, but said they would just sign it and enjoy the lower monthly payments the refinance would get me.  My loan broker asked what I was worried about.  I guess I was not really worried.  I know how to sue lenders and can afford to do it if they pushed me too far – but it would come with risk of losing and loads of time lost.  I know my hook is “reasonable discretion.”  But in the end I did not sign it because it infuriates me how this industry treats people, and I had a choice, most don’t. 

Making things clearer as promised by the President is not going to change the industry’s culture of getting people to sign anything their lawyers dream up, and then try to orally convince borrowers not to worry about it.  This situation reminds me of “just sign here, we’ll refinance you out of this horrible loan later.”  The industry will of course need a lot more than this law to cure their practices, treatment and attitudes toward the people that ultimately fund their grand homes and extended vacations.

Filed under: Advice for Borrowers, National Foreclosure News | Leave a Comment »

Bank of America’s Servicer Sued In Texas For Abusing Homeowners with Misinformation, Misdirection

Posted on July 2, 2010 by Robert Doggett, Texas RioGrande Legal Aid

Bank of America N.A. and its wholly owned subsidiary, BAC Home Loans Servicing LP, have been sued by 15 homeowners and the Texas Housing Justice League for abusive servicing practices.  The Texas suit alleges:

This lawsuit complains … of a systematic home loan servicing scheme that includes hours of telephone runaround, misleading and inconsistent information, lost correspondence, verbal abuse, and extensive delay, all of which have documented costs not only in terms of money, but in health. The facts in this case reveal the harsh reality that underlies the loan servicer’s press statements about loan modifications and forbearance agreements following collapse of the U.S. housing market.

Harryman, et al., v. Bank of America N.A., and BAC Home Loans Servicing LP, US District Court, Southern District of Texas, Victoria Division, 6:10-cv-51, Original Complaint at 1 here.

It would be hard to imagine that Bank of America and BAC will fight the facts of the case; the question will likely be whether they can get away with it.  The servicer will likely claim that poor “customer service” is something that must be accepted like a slow waiter or a bad movie.  The difference is of course that homeowners are not merely customers that should expect to be mistreated and lied to — homeowners have a contract with the holder of their home loan and these servicers are the agents for the holder — and moreover, servicing a home loan is not in the realm of someone forgetting your fries or being tricked into seeing Gigli.

Many of the Plaintiffs were told that they were eligible for loan modifications or other workout assistance, only to spend months being shuffled through Defendant BAC’s “Home Retention,” “HOPE”, “Foreclosure,” “Bankruptcy” and “Collections” departments with no resolution. Others simply wanted to know that they had been reviewed accurately for eligibility in any available programs, that a denial of assistance was final, and that their arrearage had been correctly calculated. Instead of providing Plaintiffs with basic information about the servicing of their loans and providing timely screenings for workout assistance, however, Defendant BAC misrepresented material information to the Plaintiffs about their loans, and forced them into a scheme of operation so dysfunctional that the constant barrage of misinformation, misdirection, and deliberate inactivity amounted to abuse and harassment.

Plaintiffs describe feeling “harassed,” “like a yo-yo,” and “blocked at every turn.”  When Plaintiffs called Defendant BAC the information they received over the telephone often conflicted with written statements or prior telephone conversations. In many of the telephone calls Defendant BAC spun Plaintiffs in a labyrinth of transfers from one department to another and back again. Plaintiffs spent hundreds of hours on the telephone, explaining their stories to a different person each time they called; often they were transferred between departments, knowing they would never speak to the same person again, and wondering if the information being provided would be contradicted by the next person they spoke with. Often, it was.

Harryman, et al., v. Bank of America N.A., and BAC Home Loans Servicing LP, US District Court, Southern District of Texas, Victoria Division, 6:10-cv-51, Original Complaint at 5-6  here.

While servicers will likely complain about the heavy caseloads and large number of loans in default that require attention — one thing is certain, the foreclosure arm of these servicers and their contractors have managed to deal with the heavy caseloads quite well.  If servicers can foreclose on behalf of these lenders at a record pace, they can provide accurate, helpful, timely information to the other party to the contract — the homeowners.

The Texas suit does not merely seek monetary relief, it also seeks injunctive relief as well in an effort to actually encourage or force servicers to make real changes and eliminate these complaints:

Requests to speak with supervisors or managers were met with resistance. During the course of telephone calls to Defendant BAC, Plaintiffs often found themselves disconnected after waiting on hold to speak to a supervisor, or were told that no supervisors were available. Some Plaintiffs sought out face-to-face interviews by contacting Bank of America branch offices, but simply found themselves on speakerphones with the same unaccountable departments that had previously been providing them with misinformation by telephone. Written communications did not fare better. Plaintiffs’ written submissions were often lost or misplaced.  Plaintiffs were asked to sign the same documents three, four or even five times, and were asked to provide the same information repeatedly. Many of the Plaintiffs were assigned multiple “negotiators” who would not return telephone calls, or provide timely information to Plaintiffs.

Plaintiffs’ experiences are not isolated incidents, but instead reveal a pattern and practice by Defendant BAC of deliberately misinforming borrowers in default or at risk of default, and refusing to respond to Plaintiffs’ legitimate, written and oral requests for information.

Harryman, et al., v. Bank of America N.A., and BAC Home Loans Servicing LP, US District Court, Southern District of Texas, Victoria Division, 6:10-cv-51, Original Complaint at 5-6  here.

If servicers treated lenders the same way that they treat homeowners, their businesses would disappear.  Let’s hope this reform effort catches on, and servicers make changes without the necessity of litigation or a magician.

Filed under: Advice for Borrowers, National Foreclosure News, Ohio, Texas | 7 Comments »

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