Most homeowners are unaware that their mortgage banks make
more money from foreclosure than actual payment. Mortgage banks give as
few modifications as possible and comply minimally with statutes put in place
to protect borrowers, all while employing tricks to “cash in” on homeowners’
defaults, pushing them to foreclosure. The banks take the risk of
litigation because few people sue, but getting help as soon as possible can
make the difference between homeowners asserting their rights or losing their
homes while being bulldozed by the bank.
Securitization is the reason banks want homeowners to
foreclose. When a bank assigns the risk of a loan to the investors of a
securitized trust, the “bank” is no longer a traditional bank that gets the
benefit when mortgage payments are made. Instead, the bank has become a
servicer that actually benefits disproportionately from foreclosure on a
homeowner’s property.
When foreclosure becomes a possibility, like when a borrower
misses a payment or asks for a modification, the banks seize the opportunity
for increased profit by foreclosure. This is also when the bank will start
to employ the following dirty tricks:
Bank Trick #1: Refusing Payments:
The bank refuses the check a homeowner sends in. The
bank may offer a reason (for example, there’s a mistake on the account) or it
might offer no explanation at all. The bank may even offer the homeowner
a loan modification. The bank does this to delay the homeowner from
immediately contacting an attorney to pursue a breach of contract claim.
Alternately, the bank may take trial payments in an effort
to further delay the homeowner until the arrears (also known as the forbearance)
becomes so great that the homeowner is ineligible for a loan modification or
unable to repay the debt.
Eventually, the servicer combines this trick with other
tricks, such as changing servicers, to draw the homeowner further into default.
Bank Trick #2:
Switching Services During Modification:
A homeowner gets a loan modification with one servicer and
makes trial payments. The servicer advises the homeowner that it is
switching servicing rights to another servicer.
The new servicer claims to know nothing about the
modification and delays the homeowner for months waiting to get the relevant
“paperwork.” No matter how many times the homeowner sends proof of the
modification, the new servicer refuses to honor it.
It is a violation of State law to not honor a modification
from a prior servicer but servicers know that most people will not pursue
litigation.
Bank Trick #3:
Breaching a Modification Contract:
The homeowner gets a loan modification that includes a balloon
payment of, for example, $50,000 after 20 years. After paying on
this loan modification for a year and a half, the homeowner gets a new
modification in the mail from the same servicer with a balloon payment of
$150,000. No matter how many times the borrower calls the servicer, or
tries to forward the existing modification, the agent will respond with a fixed
script that does not acknowledge the prior modification but only talks about
the new one. The confused borrower will feel like he or she is talking to
a robot (on a recorded line, being monitored by a supervisor).
Eventually, if the borrower does not sign and execute the new modification, the
bank will begin to refuse their payments on the old modification.
The servicer will also create a paper trail that tells a
different story than what is actually happening. If the bank is trying to
stick a borrower with a new modification, the paper trail will show the
borrower is refusing the modification and mention nothing about the old one.
Eventually, the servicer will stop accepting payments unless the homeowner
acquiesces to the new modification.
Bank Trick #4:
Extra Fees & Escrow Accounts:
The homeowner receives a bill for extra fees out of nowhere
so that the mortgage payment becomes something the homeowner suddenly can’t
afford. The servicer refuses to accept any “partial payment.” After
that, the bank continues adding on fees each month, increasing the amount the
borrower has to pay to reinstate. They may offer the homeowner a loan
modification as a distraction to trick the homeowner into a longer
default. Because the borrower thinks they are getting a modification,
they will spend the money they would have put towards their mortgage and be
unprepared to pay their arrears if the modification falls through, as it most likely
will.
The servicer does all this while telling the borrower they
are there to help.
The servicer may pay homeowner taxes early and then accuse
the homeowner of not paying them. The servicer may point to a clause in
the mortgage that says if the homeowner doesn’t pay the taxes, they can raise
the interest rate. They may begin charging the homeowner for forced place
insurance at a high rate even though the homeowner already has
insurance. This is something the homeowner only finds out
after-the-fact when trying to pay property taxes.
Bank Trick #5:
False Notices:
In a non-judicial state, foreclosure by recorded
notice. The Notice of Default states the amount of arrears that a
homeowner must pay back to reinstate the loan.
Servicers uniformly overstate this amount by up to $20,000,
which serves two purposes: (1) It scares borrowers with an inflated amount of
arrears that they believe they can’t cure; and (2) It creates a paper trail for
the bank so they can claim more money from investors.
Bank Trick #6:
Multiple Modifications:
The Homeowner Bill of Rights (HBOR) in most States have
protection built in for borrowers that apply for a loan modification. The
bank must respond to the application with a denial or approval within a
definite period. A denial must be in writing and must inform the borrower
of the right to appeal. The bank cannot “dual track” a borrower by
posting Notices of Foreclosure and Trustee’s Sale while reviewing the borrower
for a modification.
There are big penalties for “dual tracking” by the bank, but
only if it is the borrower’s first time applying. This is why a servicer
will often deny a modification over the phone or encourage a borrower to apply
again. Once a borrower becomes a serial modifier, the bank can dual track
the borrower all it wants without statutory penalties. And, it
will.
Banks use these tricks because they prefer foreclosure to
loan modification. Servicers benefit more from foreclosure than from
modification because of something called “creaming
the debt.” If the servicers modify the loan, their penalties and fees
might not get paid to them. When they foreclose, they get their penalties
first, before the investors– which is the “creaming.”
Foreclosure is clearly the fattest pot of gold possible and it’s
for this reason foreclosure is the bank’s primary goal.
If a homeowner spots any of the above tricks, the best thing
to do is immediately seek legal assistance in order to avoid the situation from
getting any worse.
