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The New York Post: Sloppy Seconds - Feds probe million$ in ‘double-billing’ by banks

By Catherine Curan for the New York Post

Federal investigators are looking into allegations that banks have wrongly pocketed tens of millions of dollars from troubled homeowners by double-billing for mortgage escrow fees, The Post has learned.

Exactly how much in phony profits the banks may have pocketed from this alleged practice is not known, but an analysis by The Post of bankruptcy cases in 2011 shows it could range higher than $150 million for just the new cases filed this year.

The problem has gotten so out of hand that lawyers and accountants at the New York City office of US Trustee — charged with protecting the integrity of US bankruptcy courts — are poring over local Chapter 13 bankruptcy cases for evidence of wrongdoing.

The federal investigators were tipped to the alleged practice by metro area bankruptcy lawyers. Cases specifically involved Wells Fargo and GMAC Mortgage, but lawyers say most banks had double-dipped.

“It seems prevalent, and it’s a moneymaking machine,” David Shaev, a Manhattan bankruptcy defense lawyer, said of the banks’ double-dipping.

Westchester bankruptcy defense lawyer Linda Tirelli says 75 percent of her clients face escrow double-billing by their lender or mortgage servicer, for amounts up to $2,800.

Here’s how the double-dipping scam can be pulled off.

Many homeowners opt to pay part of their property taxes and homeowners insurance with their mortgage every month. The funds are then put into an escrow account and used to periodically pay the taxes and insurance.

But after falling behind on a few payments, troubled borrowers in Chapter 13 often find that their bank or mortgage servicer tries to collect twice on the escrow funds — once as part of the overall mortgage payment, and again as a separate “escrow shortage” charge.

The average double charge is about $2,000, said forensic accountant Jay Patterson of Full Disclosure in Arkansas, who sees escrow issues in half the cases he examines.

In 2011, there were 362,000 Chapter 13 cases filed nationwide, according to the National Bankruptcy Research Center. If three-quarters of those cases involved homeowners, and even one-third of that subset of cases had extra escrow charges of $2,000, then banks clobbered homeowners with an astonishing $179 million in false charges.

Following on the heels of the widespread robo-signing scandal — where executives signed reams of foreclosure paperwork without reviewing it — the escrow double-dipping is just another example of the shoddy if not outright fraudulent practices by banks thirsty for profit above all else.

In years past, banks kept tight control over mortgage lending, but have now farmed out day-to-day loan management to mortgage servicers, which are overwhelmed by the tidal wave of defaults.

It could not be learned at press time how large an investigation the US Trustee had ongoing in the double-dip affair or how settlement talks between banks and state attorneys general over the robo-signing frauds would affect any probe.

Spokespersons at the American Bankers Association and the US Trustee could not be reached for comment.

A spokesperson for GMAC Mortgage’s parent, Ally Financial, said the case had no merit.

A Wells Fargo rep no no comment until it learned more about the cases.


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