By Michelle Conlin
NEW YORK, Oct 14 (Reuters) – Many thousands of Americans who lost their homes in the housing bust, but have since begun to rebuild their finances, are suddenly facing a new foreclosure nightmare: debt collectors are chasing them down for the money they still owe by freezing their bank accounts, garnishing their wages and seizing their assets.
By now, banks have usually sold the houses. But the proceeds of those sales were often not enough to cover the amount of the loan, plus penalties, legal bills and fees. The two big government-controlled housing finance companies, Fannie Mae and Freddie Mac, as well as other mortgage players, are increasingly pressing borrowers to pay whatever they still owe on mortgages they defaulted on years ago.
Using a legal tool known as a “deficiency judgment,” lenders can ensure that borrowers are haunted by these zombie-like debts for years, and sometimes decades, to come. Before the housing bubble, banks often refrained from seeking deficiency judgments, which were seen as costly and an invitation for bad publicity. Some of the biggest banks still feel that way.
But the housing crisis saddled lenders with more than $1 trillion of foreclosed loans, leading to unprecedented losses. Now, at least some large lenders want their money back, and they figure it’s the perfect time to pursue borrowers: many of those who went through foreclosure have gotten new jobs, paid off old debts and even, in some cases, bought new homes.
“Just because they don’t have the money to pay the entire mortgage, doesn’t mean they don’t have enough for a deficiency judgment,” said Florida foreclosure defense attorney Michael Wayslik.
Advocates for the banks say that the former homeowners ought to pay what they owe. Consumer advocates counter that deficiency judgments blast those who have just recovered from financial collapse back into debt – and that the banks bear culpability because they made the unsustainable loans in the first place.
“SLAPPED TO THE FLOOR”
Borrowers are usually astonished to find out they still owe thousands of dollars on homes they haven’t thought about for years.
In 2008, bank teller Danell Huthsing broke up with her boyfriend and moved out of the concrete bungalow they shared in Jacksonville, Florida. Her name was on the mortgage even after she moved out, and when her boyfriend defaulted on the loan, her name was on the foreclosure papers, too.
She moved to St. Louis, Missouri, where she managed to amass $20,000 of savings and restore her previously stellar credit score in her job as a service worker at an Amtrak station.
But on July 5, a process server showed up on her doorstep with a lawsuit demanding $91,000 for the portion of her mortgage that was still unpaid after the home was foreclosed and sold. If she loses, the debt collector that filed the suit can freeze her bank account, garnish up to 25 percent of her wages, and seize her paid-off 2005 Honda Accord.
“For seven years you think you’re good to go, that you’ve put this behind you,” said Huthsing, who cleared her savings out of the bank and stowed the money in a safe to protect it from getting seized. “Then wham, you get slapped to the floor again.”
Bankruptcy is one way out for consumers in this rub. But it has serious drawbacks: it can trash a consumer’s credit report for up to ten years, making it difficult to get credit cards, car loans or home financing. Oftentimes, borrowers will instead go on a repayment plan or simply settle the suits – without questioning the filings or hiring a lawyer – in exchange for paying a lower amount.
Though court officials and attorneys in foreclosure-ravaged regions like Florida, Ohio and Illinois all say the cases are surging, no one keeps official tabs on the number nationally. “Statistically, this is a real difficult task to get a handle on,” said Geoff Walsh, an attorney with the National Consumer Law Center.
Officials in individual counties say that the cases, while virtually zero a year or two ago, now number in the hundreds in each county. Thirty-eight states, along with the District of Columbia, allow financial institutions recourse to claw back these funds.
“I’ve definitely noticed a huge uptick,” said Cook County, Illinois homeowner attorney Sandra Emerson. “They didn’t include language in court motions to pursue these. Now, they do.”
Three of the biggest mortgage lenders, Bank of America, Citigroup, JPMorgan Chase & Co and Wells Fargo & Co., all say that they typically don’t pursue deficiency judgments, though they reserve the right to do so. “We may pursue them on a case-by-case basis looking at a variety of factors, including investor and mortgage insurer requirements, the financial status of the borrower and the type of hardship,” said Wells Fargo spokesman Tom Goyda. The banks would not comment on why they avoid deficiency judgments.
Perhaps the most aggressive among the debt pursuers is Fannie Mae. Of the 595,128 foreclosures Fannie Mae was involved in – either through owning or guaranteeing the loans – from January 2010 through June 2012, it referred 293,134 to debt collectors for possible pursuit of deficiency judgments, according to a 2013 report by the Inspector General for the agency’s regulator, the Federal Housing Finance Agency.
It is unclear how many of the loans that get sent to debt collectors actually get deficiency judgments, but the IG urged the FHFA to direct Fannie Mae, along with Freddie Mac, to pursue more of them from the people who could repay them.
It appears as if Fannie Mae is doing just that. In Florida alone in the past year, for example, at least 10,000 lawsuits have been filed – representing hundreds of millions of dollars of payments, according to Jacksonville, Florida-based attorney Chip Parker.
Parker is about to file a class action lawsuit against the Dallas-based debt collection company, Dyck O’Neal, which is working to recoup the money on behalf of Fannie Mae. The class action will allege that Dyck O’Neal violated fair debt collection practices by suing people in the state of Florida who actually lived out of state. Dyck O’Neal declined to comment.
In Lee County, Florida, for example, Dyck O’Neal only filed four foreclosure-related deficiency judgment cases last year. So far this year, it has filed 360 in the county, which has more than 650,000 residents and includes Ft. Myers. The insurer the Mortgage Guaranty Insurance Company has also filed about 1,000 cases this past year in Florida alone.
Andrew Wilson, a spokesman for Fannie Mae, said the finance giant is focusing on “strategic defaulters:” those who could have paid their mortgages but did not. Fannie Mae analyzes borrowers’ ability to repay based on their open credit lines, assets, income, expenses, credit history, mortgages and properties, according to the 2013 IG report. “Fannie Mae and the taxpayers suffered a loss. We’re focusing on people who had the ability to make a payment but decided not to do so,” said Wilson.
Freddie Mac spokesman Brad German said the decision to pursue deficiency judgments for any particular loan is made on a “case-by-case basis.”
The FHFA declined to comment.
But homeowner-defense lawyers point out that separating strategic defaulters from those who were in real distress can be tricky. If a distressed borrower suddenly manages to improve their financial position – by, for example, getting a better-paying job – they can be classified as a strategic defaulter.
Dyck O’Neal works with most national lenders and servicing companies to collect on charged-off residential real estate. It purchases foreclosure debts outright, often for pennies on the dollar, and also performs collections on a contingency basis on behalf of entities like Fannie Mae. “The debt collectors tend to be much more aggressive than the lenders had been,” the National Consumer Law Center’s Walsh said.
A big reason for the new surge in deficiency claims, attorneys say, is that states like Florida have recently enacted laws limiting the time financial institutions have to sue for the debt after a foreclosure. In Florida, for example, financial institutions now only have a year after a foreclosure sale to sue – down from five.
Once financial institutions secure a judgment, they can sometimes have years to collect on the claim. In Maryland, for example, they have as long as 36 years to chase people down for the debt. Financial institutions can charge post-judgment interest of an estimated 4.75 percent a year on the remaining balance until the statute of limitation runs out, which can drive people deeper into debt.
“This is monumentally unfair and damaging to the economy,” said Ira Rheingold, the executive director of the National Association of Consumer Advocates. “It prevents people from moving forward with their lives.”
Software developer Doug Weinberg was just getting back on his feet when he got served in July with a $61,000 deficiency judgment on his old condo in Miami’s Biscayne Bay. Weinberg thought the ordeal was over after Bank of America, which rejected Weinberg’s short sale offers, foreclosed in 2009.
“It’s a curse,” said Weinberg. “It’s still haunting me. It just doesn’t go away.” (Reporting by Michelle Conlin in New York; Editing by Dan Wilchins and Martin Howell)
WEDNESDAY, APR 23, 2014
When financial crimes go unpunished, the root problem of fraud never gets fixed — and these are the consequences
Eric Holder (Credit: AP/J. Scott Applewhite)
Joseph and Mary Romero of Chimayo, N.M., found that their mortgage note was assigned to the Bank of New York three months after the same bank filed a foreclosure complaint against them; in other words, Bank of New York didn’t own the loan when they tried to foreclose on it.
Glenn and Ann Holden of Akron, Ohio, faced foreclosure from Deutsche Bank, but the company filed two different versions of the note at court, each bearing a stamp affirming it as the “true and accurate copy.”
Mary McCulley of Bozeman, Mont., had her loan changed by U.S. Bank without her knowledge, from a $300,000 30-year loan to a $200,000 loan due in 18 months, and in documents submitted to the court, U.S. Bank included four separate loan applications with different terms.
All of these examples, from actual court cases resolved over the last two months, rendered rare judgments in favor of homeowners over banks and mortgage lenders. But despite the fact that the nation’s courtrooms remain active crime scenes, with backdated, forged and fabricated documents still sloshing around them, state and federal regulators have not filed new charges of misconduct against Bank of New York, Deutsche Bank, U.S. Bank or any other mortgage industry participant, since the round of national settlements over foreclosure fraud effectively closed the issue.
Many focus on how the failure to prosecute financial crimes, by Attorney General Eric Holder and colleagues, create a lack of deterrent for the perpetrators, who will surely sin again. But there’s something else that happens when these crimes go unpunished; the root problem, the legacy of fraud, never gets fixed. In this instance, the underlying ownership on potentially millions of loans has been permanently confused, and the resulting disarray will cause chaos for decades into the future, harming homeowners, investors and the broader economy. Holder’s corrupt bargain, to let Wall Street walk, comes at the cost of permanent damage to the largest market in the world, the U.S. residential housing market.
By now we know the details: During the run-up to the housing bubble, banks bought up millions of mortgages, packaged them into securities and sold them around the world. Amid the frenzy, lenders failed to follow basic property laws, which ensure legitimate transfers of mortgages from one legal owner to another. When mass foreclosures resulted from the bubble’s collapse, banks who could not demonstrate they owned the loans got caught trying to cover up the irregularities with false documents. Federal authorities made the offenders pay fines, much of which banks paid with other people’s money. But the settlements put a Band-Aid over the misconduct. Nobody went in, loan by loan, to try to equitably confirm who owns what.
Now, the lid banks and the government tried to place on the situation has begun to boil over. For example, Bank of America really wants to exit the mortgage servicing business, because it now finds it unprofitable. The bank entered into a deal to sell off all the servicing for loans backed by the Government National Mortgage Association (often known as Ginnie Mae). But Ginnie Mae refused the sale, because the loans Bank of America serviced are missing critical documents, including the recorded mortgages themselves.
If you’re a mortgage servicer, and you don’t possess the recorded mortgage, you probably aren’t able to foreclose on that loan without fabricating the document. And Ginnie Mae made it clear that the problem could go beyond Bank of America. “I don’t mean to sound like we’re picking on BofA,” Ginnie Mae president Ted Tozer told trade publication National Mortgage News. “I can’t say if it’s just BofA or not.” Incredibly, this would represent the first time a government agency has actually examined loan files under its control to search for missing documents, seven years after the collapse of the housing bubble and four years after the recognition of mass document fabrication.
Any effort to fix the system would start by reforming MERS, the electronic database banks use to track mortgage trades (and avoid fees they would incur from county clerks with every transfer). MERS was part of a broad settlement in 2011 with federal regulators, and they promised to improve the quality control over their database to avoid errors and fraudulent assignments. Three years later, the fixes haven’t happened, and four senior officers brought in to comply with the settlement have left. MERS then tried to hire a consultant to manage the settlement terms whom U.S. regulators found unqualified for the job.
The database still tracks roughly half of all U.S. home loans, and banks fear that without changes, they might have to – horrors – actually go back to recording mortgages individually with the county clerks! You know, the property law system that the nation somehow survived under for more than 200 years.
Link to full article here
March 30, 2014
This is one of the zombie house residents in Ormond Beach are trying to fight.
Florida leads the nation in zombie foreclosures.
ORMOND BEACH —
There’s a group of Ormond Beach homeowners battling a zombie home problem — homes that are standing dead and sucking the life out of entire neighborhoods.
The group is targeting homes that are abandoned and decaying, with so much overgrowth they are hard to look at.
“It is an eyesore and it is exactly a zombie home because we don’t even know at this point who owns the homes,” said Rita Press, president of Citizens for Ormond Beach.
“I think it’s gonna lower the property values if they see a rundown house,” said neighbor Joe Puccino.
The group has identified at least 300 foreclosed homes throughout the city, and numerous abandoned homes with no paper trail that homeowners simply walked away from. One house Press told us about is in the city’s exclusive, historic riverfront district.
The group contacts homeowners in foreclosure to help them through the process before a homes turns into a zombie home. They also want the city to prevent houses from turning into lifeless shells.
But the ultimate goal, Press said, is to get all those homes on the market so that new homeowners can breathe life back into a lifeless Zombie home.
FLORIDA AND ZOMBIE FORECLOSURES
Five of Florida’s housing markets are in the top 10 zombie foreclosures, according to RealtyTrac.
The foreclosure tracking group said there are more than 140,000 homes in Florida that are in zombie mode, or are bank-owned. And zombie homes in Florida are in foreclosure for about 1,095 days.
And compensation is one area where bank regulators may need to do more if they want to do more to clean up bank culture, according to critics of the industry.
Wall Street’s compensation practices can reward unhealthy levels of short-term risk-taking and entice bankers into ethical lapses. Acknowledging that, regulators around the world agreed after the crisis to overhaul bankers’ pay, in part by requiring them to wait several years before they receive all of their bonuses. The hope is that bankers will behave better if they know their employers can easily take back the deferred part of their pay.
But there is evidence that large American banks are still deferring much less pay than their European peers. The Fed is in charge of regulating compensation at American banks. When asked whether the pay overhaul at American banks had gone far enough, Mr. Dudley said, “There is potential to defer more compensation for longer periods of time.”
One particularly daunting challenge looms over the efforts to improve the ethics of banks. Some banks may be so large and complex that it would be difficult for managers to maintain a clean culture across all of their operations.
But Mr. Dudley said he would not allow size or complexity to be an excuse for ethical breaches. “Either the firm is not too complex, you can manage it, you do know what’s going on,” he said. “Or, if you don’t know, that’s sort of raising the question whether the firm is too complex to manage.”
March 12, 2014
Armando Granillo viewed the kickbacks as commonly accepted behavior and did not intend to defraud Fannie Mae, his lawyer says.
Armando Granillo is accused of defrauding Fannie Mae by failing to get the best possible prices at foreclosure sales, instead promising to provide Arizona broker Angus “Gus” Maughan unlimited foreclosure listings in a preferential deal.
A former Fannie Mae employee accused of soliciting kickbacks from a real estate broker in return for foreclosure listings regarded the practice as commonly accepted behavior.
His defense lawyers said Wednesday in a Santa Ana courtroom that the former employee had no intention of defrauding the home finance giant last year when he accepted $11,200 in cash in what turned out to be a videotaped federal sting.
The unusual explanation came on behalf of Armando Granillo, 44, a foreclosure specialist at a Fannie Mae Western regional office in Irvine. Before his arrest in May, he had spent 3 1/2 years overseeing brokers as they cleaned up and sold the foreclosed homes that had swamped Fannie Mae, requiring a $116-billion taxpayer bailout during the subprime mortgage meltdown.
Granillo is accused of defrauding Fannie Mae by failing to get the best possible prices at foreclosure sales, instead promising to provide Arizona broker Angus “Gus” Maughan unlimited foreclosure listings in a preferential deal.
According to conversations recorded by prosecutors, the deal was for Granillo to “cherry-pick” prime listings and make Maughan the No. 1 broker in the Tucson area — but he demanded in return a 20% cut of the commissions that Maughan earned.
“The scheme might have worked except for one thing,” Assistant U.S. Atty. Stephen Goorvich said during opening statements. “Mr. Maughan called the authorities,” who secretly recorded a series of meetings, including Granillo grabbing a cash-stuffed envelope in what was to have been the first in a series of payments.
Deputy Public Defender Jeffrey A. Aaron, one of Granillo’s attorneys, acknowledged during his opening statement that “much of what the government told you is not disputed.”
“But there’s more than that,” Aaron said. “The evidence in this case is going to show you that Mr. Granillo was a Fannie Mae employee working under extraordinarily difficult circumstances and extraordinary stress to fulfill what he was told was Fannie Mae’s mission.”
Aaron said Granillo and other sales representatives were under enormous pressure to get the foreclosures off Fannie Mae’s books. Crediting Fannie Mae’s recent return to profitability to the efforts of Granillo and his colleagues, he said the case would prove “surprising” to the eight-woman, four-man jury.
“The evidence will show yes, Mr. Granillo did intend to deceive,” Aaron said. “But he intended to deceive Mr. Maughan and not Fannie Mae.”
In fact, Aaron said, the defense would show that Granillo could not have delivered on his promises to Maughan because he had no authority to “cherry-pick” properties or to approve their sale at less than market value, as the government contends, without review by higher-ups.
“He did what he believed to be the mission of Fannie Mae — to preserve, deliver and sell properties as fast as he could,” Aaron said.
It was unclear whether evidence from Cecelia Carter, another Fannie Mae foreclosure specialist in Irvine, would be introduced to bolster Granillo’s contention that kickbacks were widespread and tolerated at the government-backed company.
In a pending state court lawsuit, Carter contends Fannie Mae fired her in 2011 after she tried to expose widespread corruption, including her belief that Mary Irvine, a supervisor who oversaw both her and Granillo, was among those accepting kickbacks for property listings. She and Granillo have said they discussed the kickbacks and the agency’s lack of interest in doing anything about them.
In remarks out of the presence of the jury, U.S. District Judge David O. Carter — no relation to Cecelia — expressed dismay that Carter was traveling out of the country with her daughter and not available to testify.
“It’s my fault, your honor,” said Deputy Public Defender David Israel Wasserman, representing Granillo. “She should have been subpoenaed.”
Since 2009, Fannie Mae, the nation’s biggest buyer of home loans, has been a treasure trove of lucrative foreclosure listings — a premium commodity for brokers, as buyers and investors swarmed for bargains in beaten-down housing markets such as California and Arizona.