Among the tactics used by foreclosure attorneys against mortgage servicers are Chapter 13 bankruptcy filings, claims of Truth-in-Lending Act violations and allegations of inflated appraisals. Also working against servicers are the foreclosure affidavit scandal and the alleged recommendation by many servicing representatives that borrowers default on their loans in order to qualify for a loan modification.
Last Christmas Day, Darlene Lehman was driving a hotel van on icy Interstate 70 when cars began spinning and crashing.
Lehman stopped the van. A car slammed into her from behind, then another, and another, pounding the van into a median.
“The left side of my head felt like it exploded. I blacked out,” she said. The police report showed 25 cars in a diagram of the pileup.
The injuries to her head, back and neck only signaled more problems to come. The accident nearly cost her the house in Overland, where the 49-year-old has lived since she was a child.
Out of work for more than four months, Lehman fell behind in her mortgage payments. But she had something that most delinquent homeowners in Missouri don’t — a lawyer to help hold the lender at bay.
Most people threatened with foreclosure never get legal help — already too broke to pay their house note, they can’t afford it. In fact, most people facing foreclosure in Missouri never see a courthouse. The law here allows lenders to foreclose without court approval. Homeowners who want to resist foreclosure have to file suit asking a court to stop it.
Illinois, like 22 other states, requires a court hearing. The lack of court oversight makes foreclosure a rapid process in Missouri; it can happen in a little as four months. In Illinois, it typically takes a year.
When lawyers do step in, they say they can often work a better deal for homeowners. Just the threat of a court fight can sometimes persuade a lender to modify a mortgage — offering a lower monthly payment — rather than take the house.
Lawyers for homeowners say national publicity about “robo-signing” — harried bank representatives swearing to the accuracy of documents they have never read — is working to their advantage. The scandal has softened up judges who now accept arguments they might have dismissed in the past.
Still, homeowners who hire lawyers risk losing what little money they have left on legal fees. Not every home can be saved. “It’s situation by situation,” says Chris Krehmeyer, president of Beyond Housing, a group providing free counseling for people facing foreclosure.
Lawyers get the attention of mortgage servicers — the firms that manage mortgages for the actual owners of the loans — which can be a bank or a group of bondholders. “(The servicers are) going to say, ‘We’d better dot all the ‘i’s,'” says Krehmeyer. But a homeowner behind in payments may end up losing the house anyway if the lawyer can’t find a legal barrier to foreclosure.
Catch-22
In Florida, with one of the nation’s highest foreclosure rates, some law firms have made foreclosure defense a specialty. But few lawyers in St. Louis have taken up the cause.
Partly, that’s because there’s less business to be had: In August, 1.52 percent of the mortgages in the St. Louis area were in foreclosure, which is less than half the national rate of 3.20 percent, according to realty data firm Core Logic.
But mainly, lawyers stay out because few clients can pay.
So, many foreclosure fights are fought by legal aid attorneys, who represent low-income people for free.
Michael Shea, 65, a retired laborer from Wood River, was lucky enough to get one. His furnace broke in January, and the repair bill meant he couldn’t afford that month’s mortgage.
So he called his lender, PNC Bank, and the representative suggested he apply for a mortgage modification, which generally means a reduction in monthly payment with permission to make up missed payments over time. The problem: Shea couldn’t qualify for a mortgage modification for missing just one payment, and the representative advised him to stop paying, he said.
He could have resumed making his normal $385 monthly payments but stopped paying — on the advice of the bank, Shea said.
That’s a common story among people behind on their mortgage and the counselors at nonprofit organizations who advise them. Another common story: banks losing paperwork amid the flurry of foreclosures and the selling and reselling of loans. After he stopped making payments, Shea filled out the required paperwork for a modification, only to have the bank tell him to fill it out again when he called the following month.
When the bank sought a foreclosure last spring, Shea headed for Land of Lincoln Legal Assistance in Alton, where attorney Clarissa Gaff took his case.
“I don’t take many cases because they’re so time-intensive,” says Gaff. Legal aid lawyers look for cases where homeowners can afford to make payments — if given a break — or where the bank seeks foreclosure illegally.
Lawyers have a long list of tactics designed to halt foreclosures. For homeowners with regular income, a Chapter 13 bankruptcy sometimes works. It allows people who qualify to make up missed payments over time.
Lawyers also might claim errors in the TILA form, handed to all borrowers, giving the buyer the impression that the loan was cheaper.
They attack the original home appraisal as too high, claiming it misled the buyer. “There are really bad appraisals, and you can show that the lender knew about this stuff,” says lawyer Gaff.
In Shea’s case, she’s trying to determine from PNC exactly what the bank told Shea about paying his mortgage.
A spokesman for PNC said the bank wouldn’t comment on an individual customer. PNC does participate in the federal Home Affordable Modification Program, which aims to reduce payments to about a third of a homeowner’s income.
Paper Trail Demanded
Lawyers interviewed for this story say they have yet to raise the issue of “robo-signing” in St. Louis. Lawyers elsewhere uncovered cases where bank or law firm employees blindly swore to the accuracy of thousands of foreclosure affidavits a month.
Gaff, however, believes she has seen signs of the practice. She has seen instances where the same person signed documents as a vice president of one bank, then signed other documents as an employee of another bank.
Attorneys also can take advantage of the confusion within mortgage servicing. They demand records — the actual mortgage contract with the borrower’s signature, a month-by-month account of payments received, documents appointing trustees authorized to foreclose. Sometimes, the servicer can’t produce them — they have gotten lost in the bureaucratic shuffle as mortgages are sold and resold, servicers change and lenders buy other lenders.
Sometimes lenders cut corners that can’t legally be cut. “They magically appoint trustees,” says lawyer Jerome Wallach, who defends against foreclosures in St. Louis. All of that opens the servicer to the claim that it has no right to foreclose on the loan.
It’s hard for a homeowner who is delinquent on a mortgage to win such a battle, but sometimes the servicer accepts a compromise. “I’ve had luck in getting loan modifications,” says Gaff.
Lehman benefited from just such a compromise. With the help of her lawyer, she ultimately managed to hold on to her home, where she lives by herself in the same neatly kept two-bedroom where she moved as a child in 1971. She inherited it from her parents but took out a mortgage in 2006 to pay other debts.
After the December accident, Lehman returned to work in May but couldn’t make up the missed payments — or the $1,500 tacked on for the bank’s attorney and foreclosure fees — for a total of $5,066. Bank of America scheduled a foreclosure sale.
Her attorney, Greg White, successfully negotiated with the law firm handling the sale, offering to pledge her expected settlement from a workers’ compensation case against the delinquency in her mortgage. Yet the victory also highlights the reason why many lawyers avoid foreclosure cases: White says he hasn’t yet charged Lehman for his work and doesn’t know whether he will. “She doesn’t have a dime to charge,” he said. “She was going to be thrown out of her house.”
