The Federal Reserve is trying to roll up a key law that allows borrowers to challenge predatory lending. Under “rescission” rules, if a borrower can prove that a mortgage loan was created in a predatory way, they can basically nullify the bank’s right to foreclose. Under the Fed’s new proposal, borrowers would have to pay off the balance of the predatory loan before the bank loses the right to foreclose, which renders a rescission judgment virtually meaningless. The entire point is to void out a fraudulent mortgage.
Rescission has been used as a major tool to stop foreclosures for many years. However, we are in a brave new world, with all kinds of opportunities open to foreclosure defense attorneys, a whole menu of options to challenge foreclosures. The lending industry has been so fraudulent on so many different levels for so many years, that the possibilities for challenging a foreclosure are virtually limitless. Unfortunately, so are the bank accounts of the big banks, so rarely can borrowers struggling to pay their mortgage afford equal justice. But sometimes it works, like in this case in California.
A California homeowner sued Bank of America in small claims court and won $7,595 from the bank after it burned him on a mortgage modification.
“It was a good victory for me and I think for homeowners around the country,” Dave Graham told HuffPost.
Graham, who lives in Big Bear City, Calif., applied for a loan modification under the Obama administration’s Home Affordable Modification Program, which is supposed to give eligible borrowers a “permanent” five-year modification if they make reduced payments during a three-month trial period.
Graham said his trial dragged on for 18 months. He said he made every payment until Bank of America told him in May that he didn’t qualify for HAMP, and that he’d lose his home unless he paid about $7,000 to make up the difference between his normal monthly payments and the reduced payments he made during the trial period.
“Each month when I did talk to them I was informed it’s still under review — as long as you keep making this trial payment everything will be fine,” said Graham, 53. “At some point I started receiving notices from my credit cards that they were reducing my credit amount due to recent problems making my mortgage payment on time.”
Bank of America mortgage service specialist Anthony Lopez admitted during a Dec. 15 hearing that the bank continued taking Graham’s payments even after Graham had no chance of getting a modification, according a transcript of the hearing provided by Alan Sims, a forensic real estate specialist who helped Graham make his case.
This is a servicer-driven default. The HAMP trials are supposed to last for three months. After Graham paid the trial payment for three months, he may have had a shot to qualify for the permanent modification. But after 18 months, with all the tacked-on fees and bad credit reports, he was seen as a higher risk. The delay, then, drove the denial.
$7,500 is barely enough for Graham to get even with the bank. But the precedent of this ruling can be applied to literally thousands of class-action suits across the country. Anyone who has waited more than three months for a decision on their modification could be eligible. Anyone who has suffered through dual-track, where the foreclosure is in a race against the modification simultaneously, could use this legal avenue. As one door closes, another can open. That’s not to say that the Fed should mess with the Truth in Lending Act; only that borrowers should catalog the abuses they suffer with their bank and use every means at their disposal to fight for their home.