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Last updated 11/29/14
Ocwen Accused of Illegal Mortgage Loan Practices
NPR November 18, 2014 -
According to Moody's Analytics, there were 700,000 foreclosures last year. And some of those people probably didn't need to lose their homes. Even now, more than six years after the housing crash, lawyers for homeowners say mortgage companies are still making mistakes and foreclosing on homes when they shouldn't be.
Ocwen Financial Corp. is facing an investigation by regulators and a new lawsuit over its treatment of homeowners facing foreclosures. The class-action suit alleges that Ocwen has been charging marked-up, illegal fees and unfairly pushing homeowners into foreclosure.
Ocwen, one of the nation's largest mortgage servicers, collects mortgage payments from American homeowners.
There's some irony in Ocwen's case because for years the company claimed to be better than the country's biggest banks at avoiding foreclosures. Ocwen even trademarked the slogan "Helping homeowners is what we do!"
As a "specialty servicer," the company's executives said it had computer systems and policies that were specially designed for working with homeowners who had fallen on hard times and were having trouble paying. Since the housing crash, Ocwen's chairman, William Erbey, has become a billionaire as the company has grown.
But now regulators are investigating Ocwen - not for helping homeowners, but for hurting them.
New York state's top financial regulator, Benjamin Lawsky, recently expanded an investigation into the company. One issue: thousands of back-dated letters that made it appear that homeowners had missed their window to get help avoiding foreclosure.
Ocwen has pledged to work with regulators and fix the back-dated letter problem. But the investigation has sent Ocwen's stock price swooning - down more than 60 percent year to date. And now there's this new lawsuit on behalf of homeowners.
The lawsuit alleges that Ocwen has been charging marked-up and illegal fees as well as engaging in deceptive business practices.
One lawsuit claims that Ocwen unfairly caused a foreclosure by creating phoney bills. "They just keep sending us bills with erroneous amounts on there and then charging us all these different fees," said the Plaintiffs. The couple said they always made their mortgage payment - at least until things went haywire back in 2011.
They bought the house in 2002 for about $100,000 and lived there 12 years. "We've raised our two daughters here along with two sons," they said. "Not only have we lived here and paid our bills, we have dumped a bunch of money into this place."
But then in 2011, Ocwen discovered that there'd been a paperwork mix-up where some property taxes hadn't been paid a number of years back. Documents show that Ocwen then added fees and demanded a lump sum payment of $18,000.The couple couldn't pay that. And they say they couldn't tell how much of that was taxes and how much was fees tacked on by Ocwen.
At that point, Ocwen refused to accept their normal monthly payments and started charging them additional fees that didn't seem to make any sense. They charged fees for property preservation when the couple was clearly still living in the house and taking care of it. Ocwen also charged them for "force-placed insurance when they had their own insurance with the same insurance man since 1996.
Ocwen claims the couple now owes more than they borrowed in the first place. They borrowed $98,000, but an Ocwen bill cited in the lawsuit claims the couple now owes $150,000 despite a decade of making their mortgage payments. When they'd call to try to sort all of this out, Ocwen routed them to a call center in India. They say they couldn't get their questions answered. And they were told to just pay the bill.
"We still get bills saying we owe outrageous amounts," Hopkins says.
Meanwhile, Ocwen is now moving to foreclose on their house. "Oh, yeah," Hopkins says, "they've sent foreclosure notices and they've filed here at the federal courthouse in Peoria, Ill."
Gary Klein is one of the lead attorneys representing the homeowners in the case, which has been filed in a federal court in Florida and is seeking class-action status.
Klein says there's a pattern. It usually starts with a small, fixable problem - a mix-up with an escrow account, or a homeowner misses a few payments.
"People have a relatively small and manageable default, something that they could correct, but because Ocwen adds charges in such large amounts, the problem becomes almost unsolvable," Klein says.
The lawsuit alleges that some of those fees Ocwen is charging are illegal. It says Ocwen charged Nugent and Hopkins late fees that it wasn't permitted to charge under the terms of the mortgage. The suit says Ocwen also forced upon the couple a second insurance policy through one of its own affiliates. And it alleges that the company has been improperly steering profits to itself through this affiliate company.
Meanwhile, Ocwen has been asking for larger and larger sums of money from the couple. One exhibit in the lawsuit is a recent monthly statement asking for a payment of $73,000.
"It's robbery," Chad Hopkins says. "Every day you think about ... am I going to have to pack up my stuff and lose all this investment?
"When you have small children and stuff, this is the only home they've ever known," he says. " ... [It's] very frustrating. And I know if it's happening to us, I know it's gotta be happening to other people."
Benjamin Lawsky, the top regulator at the New York State Department of Financial Services, recently released documents about his department's investigation.
Those documents show that regulators are looking into thousands of loan-modification letters that likely caused homeowners "significant harm" because Ocwen back-dated them. Back-dating the letters made it look like the homeowners had missed their chance to try to avoid a foreclosure.
On an investor conference call, Erbey, Ocwen's chairman, pledged to work with regulators. "One of our goals is to keep people in their homes whenever possible," he said. "Ocwen is creating a review and remediation process for borrowers potentially impacted by the letter-dating mistake the company has made."
As far as the homeowner lawsuit, Ocwen offered the following statement: "Ocwen is currently reviewing the lawsuit and will vigorously defend itself against the claims asserted. Because the litigation remains pending, Ocwen declines to comment further at this time."
Georgia - Federal agents in Georgia arrested the founder of debt collection agency Williams, Scott & Associates along with six other employees on for allegedly running a $4.1 million debt collection scam that targeted more than 6,000 people across the United States.
The arrests stem from an investigation by the Federal Bureau of Investigation, the U.S. Attorney's Office, the Federal Trade Commission and the Consumer Financial Protection Bureau. It appears to be the first time federal authorities have taken coordinated action against debt collectors, and could be the beginning of a broader crackdown.
"We are far from finished looking at the seedy side of debt collection," said Preet Bharara, the U.S. Attorney in Manhattan. "It affects too many people."
New York- New York Attorney General Andrew Cuomo filed a lawsuit this month in the State Supreme Court in Erie County which alleges that employees of 13 debt collection companies run by Buffalo-based Benning-Smith Group illegally posed as law enforcement officials or lawyers and threatened to arrest and harm people unless they made arrangements to pay.
The companies sometimes targeted people who owed nothing, Cuomo said. "Some companies, for example, they have a debt from a John Brown, let's say. They go to the telephone directory and they call all the John Browns with the same tactics, hoping that one of the John Browns will actually pay the bill," Cuomo said at a news conference in Mineola, New York.
Study Finds 2005 Bankruptcy Reform Does Not Help Debtors or Creditors
"Creditors have done worse" since the bankruptcy law was amended in 2005 to enhance recoveries, according to a study by University of Maine School of Law Professor Lois Lupica.
In her study, funded by the American Bankruptcy Institute, Lupica said the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was intended to prevent "the discharge of debt consumers could afford to pay."
"The theory that there are can-pay debtors lurking in the shadows was not confirmed by the data," Lupica said in an interview.
This comes as no surprise to our firm. While most laws are updated and rewritten by law school professors and experts in the field, the BAPCA was largely written by lobbyists and legislators. The new laws set up many roadblocks to filling bankruptcy but did little to make the process more fair or equitable. Instead it added expense which impacts the recovery by creditors.
Professor Lupica said the 2005 law was designed to compel individual bankrupts to pay more by restricting access to Chapter 7, where creditors typically get nothing. The theory, according to Lupica, was that more consumers would be forced into Chapter 13, where creditors are often paid a portion of their debts through payment programs spread over about five years. This is the means test that debtors must pass to file Chapter 7.
Lupica found that recoveries by unsecured creditors after the 2005 law was enacted fell by "statistically significant"amounts under both Chapters 13 and 7. "There were no winners," Lupica said.
Creditor recoveries were lower in part because"administrative expenses increased significantly," according to the study. Lupica said there wasn't even the expected increase in recoveries by secured creditors.
Lupica cited a study showing that Chapter 7 costs increased for each bankrupt by an inflation-adjusted $488 after the 2005 amendments and by $667 in Chapter 13. The average fee for a Chapter 7 filing rose 38 percent after the amendments and 63 percent for Chapter 13, she said.
"Some scholars have claimed that the credit lobby knew"recoveries would decline in bankruptcy despite the changes, she said, citing Professor Ronald J. Mann of Columbia Law School. Rather than increase recoveries, the intention was to create a "sweat box" by keeping individuals out of bankruptcy"to receive the robust recoveries that seem to elude them once a consumer files for bankruptcy relief," she said.
Lupica said she wasn't surprised by the findings. "The data confirmed my intuition developed from speaking with hundreds of bankruptcy trustees and judges," she said in an interview.
Chapter 7 Lien Stripping
For the foreseeable future, second mortgages can now be removed in a Chapter 7 bankruptcy. Since the 1992 Supreme Court case of Dewsnup v. Timm it has been possible to remove a second mortgage from real property in a Chapter 13 when the first mortgage exceeds the value of the property. Last year the Eleventh Circuit Court of Appeal ruled in the unreported case of McNeal that a 'lien strip' of a second mortgage is possible in a Chapter 7.
Beginning in January the bankruptcy judges in the Southern District of Florida began allowing lien stripping in Chapter 7 cases when the lender did not object. If the lender appeared and objected the decision was put on hold awaiting a further ruling from the Appellate Court, as the Eleventh Circuit Court was reconsidering the McNeal decision.
The rehearing of McNeal was delayed by the fact that the lender in that case, GMAC, was itself involved in a bankruptcy proceeding in New York. The New York Bankruptcy Court recently granted stay relief to the Eleventh Circuit and it has now formally published the McNeal opinion. It appears it intends to stand by that decision and one of our local bankruptcy judges has informed me that the judges in the Southern District are now granting motions to remove second mortgages in Chapter 7.
However, the Seventh Circuit Appellate Court ruled in July that lien stripping in Chapter 7's will not be permitted in the Seventh Circuit. This means that at some point the issue will go to the U.S. Supreme Court. Until then we are seeking to remove second and third mortgages in Chapter 7 whenever possible.
The process is started by appraising the property. If the property appraises for less than the amount of the first mortgage then we file a Motion to Value. In the motion we point out that the second mortgage ( and any inferior mortgages) are fully unsecured. The result is an order determining that the second mortgage is no longer a lien on the property. We include the legal description of the property and recording information of the mortgage so the order can be recorded.
Note that we can reopen completed Chapter 7's to remove second mortgages that existed when the case was originally filed. Call us with any questions. 954-356-0450.
The US Supreme Court Issues Historic Rulings
July 2, 2013
The Supreme Court issued some significant rulings at the end of the first term of 2013. Some favored liberal positions and some conservative. The mixed rulings emphasized the split makeup of the court, with a number of 5 to 4 decisions.
Voting Rights Act. The Supreme Court struck down a key part of the Voting Rights Act of 1965 — the map that determines which states must get federal permission before they change their voting laws. Civil rights activists called the decision devastating, and a dissenting justice said it amounted to the “demolition” of the law, widely considered the most important piece of civil rights legislation in American history. The 5-4 decision by Chief Justice John Roberts leaves the future of the law deeply uncertain because it will be up to a sharply divided Congress to redraw the map, if it can agree on one at all.
Defense of Marriage Act. The Supreme Court struck down the heart of the Defense of Marriage Act, the 1996 federal law that prohibits married same-sex couples from receiving federal benefits. The landmark 5-4 decision written by Justice Anthony Kennedy, and joined by the liberal-leaning justices, invalidated Section 3 of the law, which prohibits same-sex couples from receiving federal tax, retirement and immigration benefits. The decision means couples married in their states will be treated equally by the federal government regardless of their sexual orientation. This also means that same-sex married couples can now file a joint bankruptcy.
California Proposition 8. The Supreme Court issued a ruling that has the effect of making same-sex marriage legal in California again but leaves intact bans in other states and avoided reaching the merits of whether gay marriage is constitutionally protected. It’s a pyrrhic victory for marriage equality advocates because the Court did not recognize a constitutional right for same-sex couples to marry. Instead of settling the issue once and for all, the ruling on procedural grounds means the generational fight will continue in the states. In a 5-4 decision written by Chief Justice John Roberts, the Court dismissed California’s Proposition 8 because the petitioners lacked standing, or the right to participate in the case. That means a lower court ruling that overturned the ban remains in effect. The outcome means other states remain free to allow or prohibit gay marriage, leaving intact the bans on gay marriage in dozens of states.
CNN Reports that Foreclosures are on the Rise
NEW YORK (CNNMoney) -- Foreclosure filings rose in August as lenders in several states continued to work through a backlog of delinquencies and defaults, according to an industry group's report in September.
Foreclosure notices -- including default notices, scheduled auctions and bank repossessions -- were filed on 193,508 properties during the month, an increase of 1% compared with July, according to RealtyTrac, which markets foreclosed properties. But filings were still 15% lower than the year-earlier period.
"Bucking the national trend, deferred foreclosure activity boiled over in several states in August," said RealtyTrac vice president Daren Blomquist. The foreclosure hot spots have been shifting. Filings are rising in"judicial states" such as New Jersey, New York and Maryland, where the foreclosure process goes through the courts, and falling in "non-judicial states" such as California, Arizona, Nevada and the District of Columbia, where they're handled by a trustee, usually a title company. Florida is a judicial state.
We still have not seen the predicted onslaught of foreclosures that have been predicted by some of our foreclosure attorney friends but the monthly filings in South Florida are clearly rising.
Housing recovery blossoms
NEW YORK (CNNMoney) -- The U.S. housing industry -- crucial to any jobs recovery -- showed more signs of strength, according to two reports issued September 19th.
The Census Bureau said housing starts and permits rose substantially in August. Separately, sales of previously occupied homes climbed 7.8% from a year ago, according to the National Association of Realtors.
Builders started on new homes at an annual rate of 750,000, up 29.1% compared with a year earlier. They applied to build another 803,000 new homes on an annual basis, a 24.5% jump compared with August 2011.
Home builders have become increasingly bullish -- a confidence index from the National Association of Home Builders reached its highest level since June 2006.
Even after recent gains, housing starts lag well behind the peak set in May 2005, when the pace of building hit more than 2 million homes.
If sales continue to gain steam, that could help the nation break out of its economic doldrums. Home building provides many good-paying jobs, about three hires for every home built in a year, according to the National Association of Home Builders.
A rebound would create other jobs too: factory jobs at carpet and furniture makers, for example. Truckers get work transporting all those goods.
Ally's mortgage unit (formerly GMAC) files for bankruptcy
NEW YORK (CNNMoney) -- Ally Financial's ResCap mortgage unit filed for a prepackaged bankruptcy protection in May, a move that the taxpayer-owned bank says will allow it to take another step to repay Treasury. Many of our clients have recently received bankruptcy notices from the 51 related bankruptcy cases. Call us if you have any questions regarding the notice.
The ResCap unit, which operates under the GMAC Mortgage brand, was once one of the nation's leading sub prime lenders. Problems with those home loans for riskier borrowers and the sharp drop in the company's core auto finance business forced Treasury to give it a $15.8 billion bailout in 2009, as part of its efforts to rescue the troubled auto industry and housing market.
The company, which started as the finance unit of auto maker General Motors under the GMAC name, changed its name to Ally following the bailout. Besides continuing its auto finance business, it now operates an online commercial bank.
American Airlines Files Chapter 11
The parent company of American Airlines filed for bankruptcy protection in late November, seeking relief from crushing debt caused by high fuel prices and expensive labor contracts that its competitors shed years ago. For most travelers, though, flights will operate normally and the airline will honor tickets and take reservations. American said its frequent-flier program would be unaffected.
Book Giant Borders Files for Chapter 11
When Michigan based Borders Group Inc. filed for Chapter 11 bankruptcy protection in February, many assumed its rival, Barnes and Noble, would benefit from Borders misfortune. Surprisingly, this has not been the case.
In the wake of liquidation sales going on as a result of Borders store closings, Barnes & Noble’s sales are diminishing. Barnes and Noble has also seen its stock price flounder recently, hitting an all time low of less than $10 in March.
In part, Borders’ troubles stemmed from the going popularity of electronic books available through sources such as Amazon. Although Barnes and Noble procured a market advantage by developing and marketing its very own electronic book reader, the mainstay of its business is still old fashioned, physical books. However, Barnes and Noble must still weather the same long term difficulties that forced its competitor into chapter 11.
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