Saturday, May 11, 2013

Ordinance-Required, Bankster-Paid Security Deposits For Property Upkeep Due When Initiating Foreclosure Process Create Another Opportunity To Screw Over Homeowners Seeking Loan Modifications

In Worcester, Massachusetts, the Worcester Telegram reports:

  • A city ordinance intended to force far-flung banks to see to the upkeep of foreclosed properties here has had the unintended consequence of adding to the financial burden of some struggling mortgage borrowers, much to the dismay of City Hall.

    The Vacant and Foreclosing Property Ordinance requires a bank or other company that files a foreclosure petition on any property in Worcester to notify the city and deposit $5,000 for each foreclosure petition in a special account controlled by the city treasurer.

    If the bank doesn’t maintain the property to the satisfaction of the Department of Inspectional Services, the city spends the money to see to the upkeep of the property itself. If the bank properly maintains the property, it gets the money back, less an administrative fee, when it sells or otherwise transfers responsibility for the house to another party.

    The ordinance has been effective in fighting urban blight caused by national and international financial institutions unwilling or unable to secure and maintain their portfolios of foreclosed properties in the city.

    But there’s just one problem.

    Banks and other financial institutions increasingly are lumping the $5,000 cost of the property registration bond into what the borrower owes, making it less likely that struggling homeowners can catch up on their payments and end the foreclosure process before losing their homes.

    That’s the predicament in which Marjorie Evans finds herself after years of frustrating calls and numerous letters to Bank of America Corp. of Charlotte, N.C., one of the largest holders of foreclosed properties in Worcester.

    “If the city is going to do this, they have to understand the banks don’t pay anything. We pay that,” Ms. Evans said. “It’s coming back on folks. The bank is just passing it on to us.”

    What’s more, she said, it appears to her from her statements that Bank of America, which has since transferred her mortgage to a Texas company, was applying the entirety of her monthly payments to such fees, not to her loan balance. Ms. Evans was not aware that $5,000 of the fees that appeared on her account without explanation were related to the city’s property registration ordinance until she was contacted by the Telegram & Gazette for this story.

    “I kept saying to the bank, ‘Explain these fees,’ but they never would,” she said, sitting at her dining room table with a pad of notes she has compiled from years of dealings with bank officials and federal financial regulators.
  • Bank of America spokesman Richard Simon said the company was within its rights to then tack on $5,000 in fees to the account of Ms. Evans.(1)

    The standard mortgage contract required by state law places the responsibility for maintenance of a property prior to foreclosure on the borrower, Mr. Simon said.

    “The mortgage agreement also clearly allows a servicer to charge the borrower for out-of-pocket costs incurred by the servicer related to the borrower’s default or vacancy,” Mr. Simon said. “The bond required in the Worcester ordinance is such a charge, the same as legal fees, filing fees, direct property inspection and preservation costs, appraisal fees and other costs advanced by the servicer.”

    But City Manager Michael V. O’Brien is blunt in his outrage over the cost shifting, which he says penalizes borrowers for the bad behavior of big banks, some of whom have allowed foreclosed properties to deteriorate and undermine neighborhoods.
  • Worcester Anti-Foreclosure Team organizer Jon Marien also criticized the bond cost-shifting, noting that banks are recouping from customers money that they will eventually get back from the city.

    “It’s just another dirty trick that we see. It’s ridiculous,” Mr. Marien said.

    The city now holds 861 property registration bonds totaling $4.3 million from more than a dozen banks, credit unions and other financial or real estate firms, according to the treasurer’s office. Bank of America’s bonds, at $1.8 million, account for more than a third of the total.

    Paul Vigneau, assistant commissioner of inspectional services, said the city has no way of knowing which banks and other financial institutions are passing on the cost of the bond to customers, except when borrowers complain.

    “People have called us and said, ‘Your bond cost me $5,000,’” Mr. Vigneau said.

    Anecdotally, the practice seems to be becoming more common and not limited to Bank of America, he said.

    The $5,000 bond Bank of America posted when it initiated foreclosure proceedings against Ms. Evans was recently returned to the bank, according to city records. That’s because Bank of America sold the servicing rights on a large portfolio of Freddie Mac loans, including that of Ms. Evans, to Nationstar Mortgage Holdings Inc. of Lewisville, Texas, according to Nationstar Mortgage.

    The city now holds a $5,000 bond on the property posted by Nationstar Mortgage’s subcontractor, Safeguard Properties of Cleveland, Ohio, according to city records.

    But it’s not clear if the $5,000 that Bank of America charged Ms. Evans was ever removed from her account when Bank of America got its money back from the city.

    “There have been situations where we’ve released the bond back to the bank and then had to work with homeowners to help them get their $5,000 back,” Mr. Vigneau said.

    Ms. Evans said it doesn’t appear to her from her statements that the fee was ever removed from her account before Nationstar Mortgage took over the account from Bank of America, forcing her to start over in contesting the foreclosure proceeding with yet another company. She continues to live in the duplex and dispute the basis of the foreclosure proceeding against her.

    You can’t get them to take these fees off. That’s what the city has to realize,” Ms. Evans said. “Even if the city says the bank doesn’t owe the money any more, it’s still on your loan.”

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