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Kia Franklin

On DMI Blog—Exploiting Borrowers Amidst the Foreclosure Crisis

By Antoine Morris, Cross-posted from DMI Blog:

On Tuesday, May 6th, a Senate Judiciary subcommittee held a hearing on abusive practices perpetuated by mortgage lenders in the bankruptcy court system. Businesses and consumers often turn to bankruptcy courts as they liquidate their assets in an effort to workout reasonable payment plans with their creditors. For families on the brink of losing their homes, bankruptcy courts play a key role in allowing at-risk homeowners one last chance to keep their homes.

In recent months, however, some mortgage services such as Calabasas, California based Countrywide Financial Corporation have come under intense scrutiny by the Department of Justice for foreclosing homes prematurely only to pile on unnecessary and costly fees on borrowers during bankruptcy proceedings.

But Steve Bailey, the Chief Executive for Loan Administration at Countrywide, disputed those allegations. In a prepared statement before the Senate Judiciary Committee’s Subcommittee on Administrative Oversight and the Courts, he said, “Countrywide is committed to helping our borrowers avoid foreclosure whenever they have a reasonable source of income and a desire to remain in the property.”

He also claimed, “Recent media 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.” Bailey attributed any perceived abuses to no more than run of the mill “individual employee errors.”

But Countrywide’s track record of overcharging borrowers facing foreclosure and during bankruptcy proceedings suggests otherwise. One New Jersey couple who owned their home for the last 10 years were served with foreclosure papers by Countrywide and were inexplicably charged expensive flood insurance that they could not afford and did not need. It took months to resolve the error. Meanwhile, she fell behind on her mortgage payments.

In several other cases, the mortgage company has repeatedly been accused by the attorneys of the borrowers and U.S. Trustees in bankruptcy courts of inflating overdue mortgage payments and fabricating documents to bolster their claims and collect more money in bankruptcy court.

Robin and John Atchley’s experience with Countrywide seems to be emblematic of these very same abuses. In 2004, the Atchley’s moved from a mobile home to what Atchley described as her family’s dream home in Waleska, Georgia. After securing a home loan from American Freedom Mortgage her mortgage was sold to Countrywide. During Mrs. Atchley’s grieving period after her sister’s death, she took unpaid leave from her job at the U.S. Postal Service. Soon afterwards, the Atchleys fell behind on their mortgage payments by about three months worth.

Apparently, that was enough for Countrywide to initiate foreclosure proceedings against the Georgia family and create what Atchely called a “tug of war” over her home she said in her testimony. The Atchleys hoped the bankruptcy court would allow her and her husband pay off her debts and keep her house, but, according to Atchley, “to take advantage of our predicament and to profit from our struggle.” At one point, Countrywide alleged that the Atchley’s owed an extra $14,000 on her home loan and $2,250 for other unspecified fees.

Neither of those extra charges were substantiated once they were vigorously challenged by her attorney.

Katherine Porter, a bankruptcy law expert who has studied 1700 bankruptcy cases, told the Subcommittee that the Atchleys suffered an all too common fate. Proter said she found that in bankruptcy cases “mortgage servicers disregard bankruptcy law in more than half” the time.

Mortgage services frequently misapply payments during the bankruptcy case or fail to disclose post-bankruptcy attorneys fees and property inspection or simply not itemized their fees at all to overcharge borrowers. Porter contends that such a pattern of falsifying or withholding documentation demonstrates a deliberate attempt to manipulate a system intended to help those trying to aviod financial ruin.

An unpersuasive defense from Bailey of Countrywide’s treatment of the Atchleys led Senator Chuck Schumer, chairman of the Subcommittee, to conclude “Companies know that the hapless homeowner is too poor, too unsophisticated or too overwhelmed to challenge often blatantly fraudulent demands for payment.”

The Atchleys eventually lost their home and are currently living with other family members until they can save enough money to rent a place of their own.

Kia Franklin: Author Bio | Other Posts
Posted at 9:53 AM, May 08, 2008 in Civil Justice | Housing
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