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Mortgage servicer abuse facing state, fed probes

By Catherine Curan for the New York Post

On Wednesday, consumer defense attorney Linda Tirelli added another outrageous example of mortgage servicer misbehavior to her growing file of hundreds of such abuses against New York homeowners.

The overcharging by a servicer — which manages mortgages day-to-day for lenders — to bill a homeowner in foreclosure over $2,700 for property inspections that cost just $9.60 a pop came as federal and state regulators are investigating shoddy practices by servicers and big banks, which are often one and the same.

Wells Fargo, Citibank, Bank of America and JPMorgan Chase are the top four servicers and lenders in the US, with a total of 61 percent of loan originations and 54 percent of servicing market share in the first quarter of 2011.

Tirelli asked for invoices, as mandated by federal bankruptcy law, but the bank’s attorney told Tirelli he wasn’t sending them until she started litigation.

“That, to me, is abuse,” Tirelli told The Post. “How are you supposed to face your creditor if your creditor is not going to substantiate his claim?”

Unsubstantiated claims are just one of the many forms servicer abuse takes. The most common, experts say, include:

* Junk fees, which are inflated or erroneous charges for property inspections, property preservation fees, and broker price opinions.

* Misapplied or rejected payments. Servicers are known for rejecting homeowners’ checks or applying funds to the wrong account, generating late fees and penalties that put a struggling homeowner further in arrears.

* Attorneys’ fees. North Carolina consumer defense attorney O. Max Gardner III has documented instances of bankrupt mortgagees being billed for attorneys’ fees paid by servicers, despite the court awarding a lower amount.

* Dual-tracking, or assuring a homeowner that a trial modification is going well, while proceeding with a foreclosure essentially behind the homeowner’s back.

Well-documented evidence of these abuses dates back many years, and millions of American homeowners have suffered questionable, if not illegal, foreclosures because of these practices.

“Many foreclosures didn’t follow the rule of law, and you can’t take private property away from someone in this country without due process,” said a spokeswoman for the Center for Responsible Lending, which conducted the study.

Most of New York’s more than 40,000 families in foreclosure struggle without legal help, waiting for a long-delayed lifeline from regulators.

Homeowners can find cautious new hope on three fronts.

The US Trustee’s office is now investigating abusive servicing practices. The Department of Housing and Urban Development’s inspector general undertook audits of five major banks, and is accusing them of defrauding taxpayers in foreclosures on government-backed home loans, according to published reports.

Also last week, New York State Attorney General Eric Schneiderman said he is investigating Bank of America, Goldman Sachs and Morgan Stanley’s mortgage securitization practices.


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