Here’s part of the problem:
Without government aid, servicers don’t have enough financial incentive to modify mortgages. Each year, they earn about one-quarter to one-half percent of the value of the loans they service, so the larger the mortgage, the more they make. They earn less if the loan is modified, usually by lowering the interest rate or principal or adjusting the term.
The servicers also make money through late fees, or by foreclosing. The paperwork necessary to execute a foreclosure can generate hundreds of dollars in fees for some servicers.
Here is a situation that we are seeing more of in Alabama:
As borrowers fell behind on their loans, the servicers pocketed more late fees, foreclosure fees and negotiation fees. Some even profited from foreclosures.
In February 2005, Janet Simmons was more than $30,000 behind on her mortgage. Bayview Loan Servicing began foreclosure proceedings on her home, located on 3.1 acres in rural Rockingham County, Va., between Washington and Charlottesville.
But Bayview – which stands to receive up to $44.3 million from Treasury’s loan-modification program – foreclosed without providing required written notice, the Virginia State Supreme Court found. Bayview never sent Simmons a letter by certified mail, as required under her loan.
Unbeknownst to Simmons, the home was sold at auction in July 2005. She didn’t find out she had lost the house until the new buyer asked why she was doing yard work on a home she no longer owned, said her lawyer, Kevin Rose.
The courts awarded Simmons $156,809 – the difference between what her home was worth and what it had received in a foreclosure sale.
The contract between the borrower and the mortgage company – the note/mortgage – must be followed. If it is not followed then the mortgage company has breached the contract. One provision often violated, and in fact we are suing a company for this tomorrow, is the requirement to give proper notice to the consumer that the note is being accelerated and declared in default.
Due to the increasing amount of fraud and illegal conduct in this area, we are going to hold a free foreclosure seminar in early October to help Alabama consumers understand their rights in dealing with mortgage companies and servicers. Feel free to contact us if you would like to attend. We will have more details and our new website devoted solely to foreclosure issues in the next week or so.