Beset by financial problems in 2002, Eunice Anderson fell months behind in the mortgage payments on her four-bedroom ranch in Redford Township, Mich., near Detroit.
Anderson, 48, a medical insurance auditor, says she was unable to refinance or negotiate a relief plan with her lender, Countrywide Financial (CFC). Facing foreclosure, she filed a Chapter 13 bankruptcy petition that let her keep her home while she paid more than $11,000 in debt.
She emerged from bankruptcy three years later with a court-filed certification that she had paid in full. But weeks later, Countrywide notified Anderson she still owed more than $10,000 in late payments and other fees, and threatened to foreclose.
"I thought when I came out of bankruptcy, I was paid up and current," says Anderson, who felt her only option was to seek bankruptcy protection for a second time. "I think it's kind of unfair."
She's now a plaintiff in a federal lawsuit that seeks class-action status and alleges that Countrywide, the nation's largest home lender, disregarded bankruptcy-court rules by billing for unwarranted fees.
The case, being fought amid what the Mortgage Bankers Association says is the highest level of foreclosures since 1979, is among scores of lawsuits accusing the lightly regulated companies that collect mortgage payments of violating borrowers' rights, a USA TODAY review of court and government records shows.
The lawsuits typically include allegations that mortgage-servicing firms mishandle borrower payments, triggering unwarranted late charges or defaults; bill homeowners for more than they owe; charge for unneeded and expensive property insurance; and disregard bankruptcy-court rules.
Countrywide, whose shareholders on Wednesday approved an expected July takeover by Bank of America (BAC), is a prominent defendant in some of the litigation. The attorneys general of Illinois and California sued the company Wednesday for alleged deceptive practices, including mortgage-servicing abuses. But cases across the nation also focus on other mortgage-servicing firms, including some owned by major investment banks.
"We see huge numbers of problems with this industry," says Tara Twomey, an attorney for the National Consumer Law Center, which represents low-income clients.
Countrywide and other mortgage servicers reject any notion that their practices have been improper. "Reports alleging that mortgage servicers are systematically charging excessive fees and using the bankruptcy process to push borrowers into foreclosure, or abusing the process more generally, are inaccurate," Steve Bailey, Countrywide's loan administration chief, wrote in testimony submitted at a May congressional hearing.
But homeowners nationwide say the firms have violated housing laws, bankruptcy rules or both:
•In a Pennsylvania bankruptcy case similar to Anderson's, Judge Thomas Agresti in May dismissed a proposed settlement of a case that included allegations Countrywide used fabricated letters in its bid to foreclose on the home of Sharon Hill in Monroeville, Pa. The letters contained purported notifications of increases in Hill's mortgage payments during the bankruptcy process. But Countrywide never sent them to Hill, court records show. They were "misrepresented as bona fide payment-change letters," a bankruptcy trustee alleged in a June 9 court filing.
Agresti called that a sign "something is not right in Denmark."
•In New Hampshire, Michael Dillon, a handyman and former freelance stage technician, won a 2005 state court decision upholding his allegations that Fairbanks Capital improperly tried to foreclose on his Manchester home.
Judge Gillian Abramson issued a contempt ruling after concluding Fairbanks had "created a predatory scheme of penalties," in part by billing him for fees for which Dillon "did not receive any notice." The ruling ordered the firm to give Dillon a chance to reinstate the mortgage "without penalties." The litigation is continuing.
•In Louisiana, a bankruptcy-court review of accounting by Wells Fargo Home Mortgage (WFC) found the firm's servicing arm collected nearly $25,000 more from Michael Jones than he owed on his Mandeville home. Judge Elizabeth Magner ordered a refund and told Wells Fargo to pay more than $67,000 in sanctions and damages. The firm has appealed.
•And in Illinois, a lawsuit that consolidated 18 cases from 10 states accuses Ocwen Financial (OCN) of engaging in a "nationwide scheme of illegal, unfair, unlawful and deceptive business practices" involving improper fees, costs and other charges. The case is in settlement negotiations, court records show.
Separately, EMC Mortgage and its former parent, Bear Stearns, notified investors in March that the Federal Trade Commission staff believes the firms "have violated certain federal consumer protection statutes" with their mortgage-servicing practices. JPMorgan Chase (JPM) acquired the servicing firm in May with its purchase of Bear Stearns. EMC said it expects negotiations to avoid a federal lawsuit.
This month, the firm also agreed to settle a federal lawsuit filed by Excel and Annie Ward, said Kenneth Mayfield, the lawyer for the Mississippi homeowners. They accused EMC of failing to refund more than $4,100 they were owed from an insurance settlement.
Along with the EMC investigation, the FTC is assessing whether other mortgage servicers and lenders "are making deceptive claims," agency Chairman William Kovacic wrote in a June 4 letter to Sen. Chuck Schumer, D-N.Y.
'Abuse' of bankruptcy process
The FTC action comes five years after it reached a $40 million settlement with Fairbanks Capital to resolve allegations the company failed to post borrowers' mortgage payments on time, charged unauthorized fees and used dishonest or abusive debt-collection practices.
Fairbanks subsequently changed its name to Select Portfolio Servicing. The renamed company, now owned by Credit Suisse, (CS) has been the subject of similar complaints to the FTC since the settlement.
The Executive Office for U.S. Trustees, the Justice Department agency that oversees bankruptcy cases, has intervened or filed actions in 16 cases involving Countrywide, GMAC Mortgage Loans, NovaStar Mortgage or Washington Mutual Bank (WM). The cases were filed in eight states. MORE
Source: USA Today
See Video: Tara Twomey Attorney with the National Consumer Law Center
Answers questions: If You Have Problems With Your Mortgage
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See:
What if we could stop some foreclosure nightmares? We could -but it would take an Act of Congress!
Foreclosure Mistakes Lenders Make And How To Protect Your Home: An Interview With Katherine Porter
If you agree that borrowers deserve the right to track their mortgage payments and verify that they are applied accurately, please sign the Petition for Monthly Statements.
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