Alabama Consumer Law Blog

Here's a great quote from the Federal Reserve that sums it all up:

“The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify,” concluded a recent paper published by the Federal Reserve Bank of Boston.

A New York Times article lays out more details:

Mortgage companies, some of which are affiliated with the nation’s largest banks, are paid to manage pools of loans owned by investors. The companies typically collect a percentage of the value of the loans they service. They extract their share regardless of whether borrowers are current on their payments. Indeed, their percentage often increases on delinquent loans.

Legal experts say the opportunities for additional revenue in delinquency are considerable, confronting mortgage companies with a conflict between their own financial interest in collecting fees and their responsibility to recoup money for investors who own most mortgages.

Of course, the banks deny they would ever do anything improper. Recent conduct proves this point - or does it disprove it? We'll leave it to the kind reader to determine this yourself. Here is the claim by the banks:

Bank of America disputed that characterization. “To think that somehow or other we would jeopardize investor relationships and customer relationships for the very small incremental income we would receive by delaying seems ludicrous,” said Robert V. James, the bank’s senior vice president for mortgage operations and insurance. “It’s not the right thing to do.”

Great to see that Bank of America is guided by "the right thing to do" - this will be comforting to many people.....

This helps answer that question of why do mortgage companies not care if my home goes into foreclosure and is sold for less than the loan - because the mortgage companies generally don't own the debt so they don't care - all they care about are their junk fees and bogus expenses they can charge.

If you live in Alabama and would like to discuss your experience with mortgage companies or if you are or have faced foreclosure, feel free to let us know and we'll be glad to meet with you to discuss your legal options.

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Here is a fascinating story about an outraged judge who sanctioned a mortgage company by destroying the note and ruling that the homeowners do not owe any more money.

[Judge] Spinner excoriated OneWest for repeatedly refusing to work out a deal, for misleading him about the dollar amounts at stake in the case, and for its treatment of the couple over months of hearings.

OneWest's conduct was "inequitable, unconscionable, vexatious and opprobrious," Spinner wrote.

He canceled the debt because the bank "must be appropriately sanctioned so as to deter it from imposing further mortifying abuse against [the couple]."

The bank is involved in a similar case in California, where it's trying to foreclose on an 89-year-old woman, despite two court orders telling it to stop.

This is an extreme case - and it may be justified by the mortgage company's conduct - so it will be interesting to see how this plays out.

We expect more rulings along these lines to come down as the spotlight is directly on these mortgage companies that took government money and then use unfair means to try and take homes away from families.

We'll keep you posted.

If you live in Alabama and are facing foreclosure or fraudulent conduct by a mortgage company, please feel free to contact us for more information on your rights.

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The Michigan Collection Law Blog has posted an article that warns consumers about a lesser known danger to your credit score. The article discusses a couple who traded in their RV, unaware that it would cripple their credit score.

When the happy couple trade in their old RV that had a lien on it from the prior lender, for a new RV, they counted on the Walt Michals to pay off the loan balance of about $180,000. That did not happen. Walt Michals went out of business without paying off the lien on the old RV and now the couple is on the hook for the old loan and the new loan. This has been financially devastating to the couple and has completely trashed their credit score because they have not been able to keep up with the old payment as well as the new one. Worse yet, they probably have no rights under the Fair Credit Reporting Act that could be used to clean up their credit score.

The article gives several pointers on how to protect yourself and avoid this situation. First, you should turn the car title over to the bank and not the dealership. The dealership shouldn't give you any problems if they truly intend to pay off the title. If the vehicle were to suffer any damages while in the care of the dealership, your insurance should cover it. Also, if the dealership hides or transfers your vehicle, it is officially stolen since the title is not in their name.

If you have questions or concerns regarding your credit score, feel free to contact us.

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MSNBC.com has posted an article about the rise in delinquent mortgages from fixed rate home loans "rather than the high-risk subprime loans with adjustable rates that triggered the mortgage crisis." There is also a record high number of homeowners who are behind on their mortgages. Both are linked to the high unemployment rate.

Driven by rising unemployment, such loans accounted for nearly 33 percent of new foreclosures last quarter. That compares with just 21 percent a year ago, when high-risk subprime loans made during the housing boom were the main reason for default.

Despite the improvement in the housing market over the summer, some are still skeptical it will last. Quite a few foreclosed homes have yet to be put up for sale, and when they are, home prices will fall even lower, especially in Florida and California.

If you are behind on your mortgage or facing foreclosure and have questions about bankruptcy, or perhaps are being harassed by debt collectors, feel free to contact us.

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Max Garnder, III, has an excellent article on some of the abuses that servicers inflict upon consumers who are in a Chapter 13 bankruptcy that we suggest you carefully read.

This is an entertaining and informative article by Max and you can get a taste of it from the first paragraph:

Wayne Gretzky once said that his success was due to the fact that he focused on where the puck was going to be, not where it was. For most consumer debtors who have home mortgage loans and are involved in Chapter 13 bankruptcy cases, this Gretzkyism is somewhat of a double entendre. The fact of the matter is that most of these debtors have no idea who really owns their home mortgage loan and they most assuredly do not know why the balance owed keeps going up. Or, as Yogi Berra might say, these “guys have been double-pucked!”

Read this article if you are interested in securitization and what it means for consumers in a Chapter 13 bankruptcy....and even if you are not in a bankruptcy, you will find useful nuggets as well....

If you live in Alabama and would like to talk with us about this issue, or foreclosures, or any other issue, please feel free to call us at 205-879-2447 or fill out our inquiry form on our website.

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One issue that comes up in almost all Alabama foreclosures is whether the loan (the note) has been held by the original bank or mortgage company or instead if it has entered the somewhat mysterious world of mortgage back securitization?

We begin a series on this issue today and will add original posts and also newsworthy items to this "category" on our blog.

So, what in the world is "securitization" and what does it mean to me? In this post we will start to answer the first part of this question - what is it - and in future posts we will get to the personal part which is what does it mean to me....

Here is a basic definition that will work for us.

Securitization is when a large number of assets (for examples home loans) are bundled or "pooled" together into a separate legal entity which then sells investments (or securities) to investors who put money into this separate legal entity.

So here's an example to start to put all of this in context.

A local bank could loan you the money to buy a house. You would sign a "note" which lays out the terms of the loan (30 years, 6 % interest, $150,000, etc) and the bank would keep that note. Every month you made your payment the bank would make its return on the loan - the interest payments.

But if you missed a payment, the local bank would miss that money coming in that month. If you went into foreclosure the bank would own the house instead of getting its payments.

If the bank asked Joe Blow to invest in this loan, he would have the same risks and limitations that the bank had. That is, long term (30 years) with the possibility that the loan would not be paid off. Not a very liquid investment.

So, here is where securitization comes into play. An investor does not invest directly into the loans but instead into the separate legal entity which is normally a trust established under New York law.

OK, what difference does this make? Here's the deal. The trust will have hundreds or thousands of residential loans. The trust will also make different investment options available. Maybe you want a higher rate of return and are willing to take on a higher risk? You can invest that way. Maybe you want a short term investment - that's available. Maybe you want to be very safe in your investment - supposedly the trust will allow you do this. All of these options are available even though the trust is full of 30 year - fixed 6% - $150,000 loans.

So going back to the original loan - that loan is normally immediately sold to the trust so the bank that you borrowed the money from does not own the loan. The trust does. Or supposedly it does.

We will pick up on some of the implications of securitization in future posts but for now we wanted for all of us to be on the same page as to what it means to have a loan that is involved in the securitization process.

If you live in Alabama and would like to talk with us about this issue or any other issue, please feel free to call us at 205-879-2447 or fill out our inquiry form on our website.

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We wanted to give Alabama consumers who are facing foreclosure some examples of typical fraud in the context of foreclosures and loan modifications.

We'll start with loan modifications. A loan modification is typically defined as a permanent change to your note - normally the interest rate, length of the loan, the movement of arrearage (missed payments) to the end of the loan, etc.

Normally the mortgage servicers will talk with you about a loan modification once you start falling behind on your payments. They will also be threatening foreclosure. You need to think of these as two independent trains - whichever reaches the station first wins.

One thing about loan modifications - either by design or otherwise - the mortgage servicer will normally keep you in the dark about the status and will say they don't control the foreclosure people. So you have no way of knowing if the foreclosure is going to be stopped because the foreclosure people will say they don't know anything about a loan modification.

But often towards the end the loan modification people (and remember all of these folks work at the same company) will say "Congratulations, you are approved for your loan modification!" But, what about the foreclosure? "Don't worry about that - it has been stopped and we will send you a new payment book in a couple of weeks."

What a sense of relief! You cancel the meeting with the bankruptcy attorney or with the mortgage broker who said she could save your home, etc.

None of that is necessary because you are not going into foreclosure. Your home is safe. You made it.

Until you get a letter from the foreclosure lawyer informing you that you must leave your house within ten days or you lose your right of redemption because your home was foreclosed yesterday.

Then, a couple of days after the foreclosure letter you will get a letter saying "You have been rejected for a loan modification."

What does all of this mean? Our position is that this is fraud. The servicer, who is the only one who knows if the foreclosure will be stopped and the modification granted, tells you the good news. Who else would know? You believe this good news and rely upon it. Then your home is foreclosed and lost.

The servicer never approved you for a loan modification but yet it said that it had approved you. Classic fraud and this is happening with amazing frequency. The servicers take the position that judges will give them a license to lie and will not hold them accountable. We think otherwise.....

Another example of fraud related to foreclosure. We have seen Alabama consumers who are facing foreclosure contact the mortgage servicer to find out what they need to do to save their home. They are told to pay "three months" payments and that will bring the home out of foreclosure.

Desperate to save their home, and wanting to avoid bankruptcy, the homeowner gathers up the money and does not see a bankruptcy attorney. The three payments are made and the servicer accepts the money and deposits it.

All is well. The home is saved. Or is it?

As in the example above, the Alabama consumer gets a letter informing her that her home has been foreclosed and she must immediately leave or she will be sued. (Remember in Alabama foreclosure is typically "non-judicial" and therefore the court is not involved in the foreclosure and only becomes involved in the lawsuit to "eject" the homeowner from their home.)

What happened? Again, it appears to be fraud. The servicer is the only entity in the world that knows what it will take to end the foreclosure. The servicer says "pay three months payments" and the foreclosure will not occur.

The homeowner believes this and pays it. The servicer accepts it. So why did the foreclosure occur?

Several possibilities. Most common is the servicer wanted the money and wanted to foreclose. Or the servicer will argue that it is just so big and has too many loans to service that it can't possibly be expected to keep up with payments and promises. Or perhaps the servicer applied the payments in the wrong order - instead of applying payments to the interest and principal for each monthly payment first, and then escrow and then late fees and charges (which is how most notes require payments to be applied), many servicers will reverse the order which means you really didn't pay three months. So the servicer will say since it applied the payments wrong, you broke the agreement and therefore it didn't lie! What kind of twisted logic is this?!

Remember there are all sorts of laws that can be used if you are facing a servicer that has lied to you. Federal laws and Alabama state law. Learn about your options and your rights and then take action. This is the only way to protect yourself from abusive mortgage servicers that use fraud to steal your home.

If you are an Alabama consumer and have any questions, call us at 205-879-2447 or fill out our inquiry form on our website. We look forward to hearing from you.

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Due to a great amount of interest, we have decided to hold a free teleseminar on Tuesday, November 24, 2009, at 7 pm CST. This will be the first in a series of seminars that you can attend from the comfort of your home, office, or car (be safe if driving....).

Our first one will be on "How To Fight Back Against Abusive Debt Collectors" and in this hour long discussion we will share with you some ideas on how to use both State law and Federal law to protect yourself from debt collectors who cross the line. Based upon the types of cases coming into our office that result in lawsuits being filed against collection agencies, and based upon the number of calls and emails we receive, debt collection abuse is not slowing down any - instead it is picking up. This seminar will help you understand your rights and options in fighting back against these types of collectors who don't play fair.

There is no charge to attend. Those who register will also receive a bonus four part email series that will expand upon the ideas in the seminar.

Here are some of the topics we will cover:

When does the Fair Debt Collection Practices Act apply?
Can a debt collector contact my neighbors? Family? Co-workers? Friends? References?
If a debt collector breaks the law, can I recover money damages against the collector?
How do I make a debt collector take false information off of my credit report?
Should I record calls from a debt collector?
Are voicemails from debt collectors illegal?
Can a debt collector call my cell phone?
There will be other topics we will cover - I don't know what those are because I need for you to come up with them!

We would like your questions and suggestions - please send those in to us before the call and then you can also ask questions during the call.

We are very excited about doing this and trust this will be very helpful for anyone who is dealing with a debt collector. There is nothing wrong with a debt collector collecting a debt. As long as the laws are followed. So join us and learn more about the laws and what your options are when collectors turn abusive.

Fill out the sign up form below so that you can reserve one of the limited spots on this call.

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Or you can call us at 205-879-2447 to reserve a spot. We look forward to "seeing" you on the call!

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The Consumerist has posted an article that highlights what your credit report can be (legally) used for. Some things your credit report can be used to determine are:

-Applications for credit, insurance, and rentals for personal, family or household purposes.
• Employment, which includes hiring, promotion, reassignment or retention. A CRA may not release a credit report for employment decisions without consent.
• Court orders, including grand jury subpoenas.
• "Legitimate" business needs in transactions initiated by the consumer for personal, family, or household purposes. (litigation is not legitimate by 3rd parties)
• Account review. Periodically, banks and other companies review credit files to determine whether they wish to retain the individual as a customer.
• Licensing (professional).
• Child support payment determinations.
• Law enforcement access: Government agencies with authority to investigate terrorism and counterintelligence have secret access to credit reports.

However, debt collectors don't legally have the power to false information on your credit reports. Such behavior is prohibited by the Fair Credit Reporting Act.

If you have had issues with how your credit report has been used, or problems with debt collectors, feel free to contact us.

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A Qualified Written Request (QWR) is a powerful tool when dealing with abusive mortgage servicing companies (Litton Loan, Wells Fargo, Bank of America, etc). This is a right under RESPA - Real Estate Settlement Practices Act - to gain information and to dispute false bills or charges.

A couple of pointers.

First - it must be in writing. Seems obvious from "Qualified WRITTEN Request" but we have seen far too many people try and make this by calling. Don't do that - instead send it in writing. Certified mail, return receipt requested.

Second - it should be sent to the mortgage servicing company and to other relevant companies. Here's the deal - send it to everyone you can think of. Former servicing companies. Foreclosure attorneys. Current alleged owner of the note, etc. There have been cases where it was sent to the wrong place and consumers have lost their powerful rights under this law so cover your bases and send it to everyone. Mention that "If this QWR should go to someone else, please let me know so I can forward it directly to that person."

Third - it should be sent to the correct address. This normally is NOT the billing address. Instead it will be a place listed on your bill or on the website of the servicing company that is described as "For all other written correspondence" or "For billing questions or disputes" etc. You can and should also call the company and ask where is the correct address. Carefully document all of your contacts with the mortgage servicing company.

Fourth - expect a response in about 30 days and then again in about 90 days. The servicing company has 20 business days (in essence 30 days) to let you know it received the QWR and then 60 business days (again basically 90 days) to respond.

OK, so what do you put in a QWR? Here are some suggestions:

1. Identify who you are, your loan, account number, property address, etc. so the servicer can find you in its system.
2. Whatever information that you legitimately need to determine if the servicer has been properly applying payments, charging fees, etc.
3. If you legitimately dispute a charge or the way the company handled a payment (particularly a lump sum payment as these are often handled illegally) then clearly state that in the QWR letter. We'll talk about this more later but remember that charges are automatically imposed on your account and to eliminate a bogus charge requires a human being to manually do this so you can see why so often illegal charges are not removed but continue to be added against your account.

While your dispute is pending, the disputed part cannot be shown as late on your credit report.

You will find a QWR a powerful tool to gain information about your account and to dispute bogus charges.

If you have any questions about how to draft a QWR or your legal remedies if a QWR is not properly handled by the servicing company and you live in Alabama, please feel free to contact us. You can call us at 205-879-2447 or send us an email through this blog or through our website or you can join us for our foreclosure seminar tomorrow night at 4pm in which we will discuss QWRs.

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