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Foreclosures on the rise for seniors with reverse mortgages

Virginia Rayford, 92, hoped a reverse mortgage would help her stay in her house. Photo: Salwan Georges, The Washington Post.

As she was getting on in years and her resources dwindled, Virginia Rayford took out a special kind of mortgage in 2008 that she hoped would help her stay in her three-bedroom Washington rowhouse for the rest of her life.

Rayford, 92, took advantage of a federally insured loan called a reverse mortgage that allows cash-strapped seniors to borrow against the equity in their houses that has built up over decades.

But the risks of the financial arrangement are stark — and today the frail widow finds herself facing foreclosure.

Under the terms of the loan, Rayford can defer paying back her mortgage debt that totals about $416,000 until she dies, sells or moves out. She is, however, responsible for keeping up with other charges — namely, the taxes and insurance on the property.

The loan servicer, Nationstar Mortgage, says Rayford owes $6,004 in unpaid taxes and insurance. If she cannot come up with it, she stands to lose her home in Washington’s Petworth neighborhood.

“I’ve cried a million nights wondering about where I am going to be,’’ Rayford said.

Across the nation, an increasing number of seniors are facing foreclosure after taking out reverse mortgages, either because they fell behind on property charges or failed to meet other requirements of the complex mortgage loans, according to federal data and interviews with consumer and housing specialists.

“Folks who had expected to age in place and live for the rest of their lives in their home are now having to scramble to find a new place to live,” said Odette Williamson, a staff attorney with the Boston-based National Consumer Law Center, which advocates for consumer justice for low-income people. “People just don’t know where to turn. It’s heartbreaking.”

The federal Department of Housing and Urban Development, which insures most reverse mortgages in the country, says it lacks detailed data on how many homeowners have lost their homes or are facing foreclosure in the program, which was launched in 1989 and covers about 636,000 loans. Nationstar declined to comment for this article.

But a HUD report issued last fall found that nearly 90,000 reverse mortgage loans held by seniors were at least 12 months behind in payment of taxes and insurance and were expected to end in “involuntary termination” in fiscal 2017. That’s more than double the number the year before.

Losses in the senior mortgage program have been a drain on the Federal Housing Administration’s mortgage insurance fund that supports all single-family loan programs, including traditional forward mortgages and reverse mortgages.

HUD spokesman Brian Sullivan said the agency has tightened the requirements to reduce defaults for new loans going forward. It’s a necessary measure as its reverse mortgage portfolio — whose value can go down with defaults or home prices and property values if homes fall into disrepair — was valued last fall at negative $7.7 billion.

Still, he said, reverse mortgages are “a critical resource for seniors who wish to access their accumulated home equity and age in place.”

Before 2015, the only thing homeowners ages 62 and older needed to qualify for a reverse mortgage was equity in their home; lenders weren’t required to determine whether they could afford to maintain their homes or cover tax and insurance payments in the future. Some homeowners used the funds to pay off the original mortgages or ran out of money after covering living expenses over many years. Now HUD requires all borrowers to undergo a financial assessment to qualify, to make sure they will be able to pay their taxes and insurance.

But tens of thousands of troubled loans remain. More than 18 percent of reverse mortgage loans taken out from 2009 to June 2016 are expected to go into default because of unpaid taxes and insurance, according to the HUD report. That compares with less than 3 percent of federally insured loans that are considered seriously delinquent in the traditional mortgage market.

Joanne Savage, an attorney with AARP’s Legal Counsel for the Elderly, said that seniors like Rayford are the victims of a past system. She joins other advocates who argue that HUD and lenders should work harder to help troubled borrowers facing displacement for relatively small debts compared with the value of their homes.

“There needs to be a little more mercy,’’ Savage said. “We are going to have a steady stream of these clients for five to 10 years.”

Foreclosures on these mortgages have been on the rise after a 2011 mandate from HUD requiring loan servicers to work out a repayment plan with seniors in tax and insurance default — or to foreclose if there is no way to help them. In 2015, the federal agency instituted detailed timelines for lenders to work with borrowers.

HUD made the changes to shore up its insurance fund after a federal audit a year earlier that criticized it for allowing lenders to continue paying property charges for defaulting borrowers, adding to the borrowers’ final debt, which resulted in millions of dollars of losses in 2009 and 2010. In many cases, a lender paid property charges to municipalities for years, in an effort to protect the lender’s investments.

Representatives of the National Reverse Mortgage Lenders Association declined to comment for this report.

Leslie Flynne, a senior vice president at the Houston-based company Reverse Mortgage Solutions, said servicers and lenders are struggling to meet strict timelines HUD set for them to deal with defaulting loans or risk losing money. She said servicers don’t want to displace struggling senior citizens, but in many cases borrowers simply don’t have enough resources to save their homes.

She said seniors who obtained loans before 2015 are more likely to be in trouble. Families, nonprofits, churches and others should work to help them, ­Flynne said.

“You have people who have run out of money, they can’t pay their taxes, and they are awaiting a miracle,” she said.

Why elderly homeowners didn’t pay their taxes depends on their story. Some say they weren’t aware they had to pay taxes and insurance, thinking the charges would be covered by lenders; others knew about their obligations but ran out of money; others still say they think loan servicers have mischarged them.

Advocates of the loans — including celebrity spokesmen such as Tom Selleck and Henry Winkler — say reverse mortgages can help seniors enjoy their later years.

In a recent TV advertisement for American Advisors Group, Selleck says: “Many older Americans are in a tough spot right now. Why not use a reverse mortgage loan to access that equity?”

Borrowers can receive 50 percent to 66 percent of the value of their equity, depending on their age and the interest rate, generally set at about 5 percent. For example, a 73-year-old with a home worth $100,000 and no current mortgage could receive a loan in a lump sum or monthly installments, or a line of credit, of up to $57,900, not including closing costs, according to HUD.

The debt increases each month with interest on the loan, and in many cases fees to the servicer and an insurance payment to HUD, which guarantees to take over the debt from the lender when it grows bigger than the value of the house. The loan comes due when the borrower dies, moves or violates loan requirements. At that point, owners or their heirs who want to keep the home can pay the debt or 95 percent of appraised value of the property — whichever is less. Or they can walk away from the house.

The federal Consumer Financial Protection Bureau has long warned about deceptive advertising and reverse mortgages. In December, the federal agency fined three companies — American Advisors Group, Reverse Mortgage Solutions and Aegean Financial — for alleged false claims, saying they told seniors with reverse mortgages that they would not have to make monthly payments or face foreclosure, omitting the risks of failing to pay property charges.

“These companies tricked consumers into believing they could not lose their homes with a reverse mortgage,’’ said Richard Cordray, bureau director.

The companies did not admit wrongdoing in settlements that required them to collectively pay $790,000 in fines.

Sarah White, a foreclosure prevention attorney at the nonprofit Connecticut Fair Housing Center in Hartford, said she went from never hearing of problems with reverse mortgages to spending a large portion of her workday helping senior citizens stave off foreclosure.

Dorothy Leong, 81, is facing foreclosure on a home she has owned for decades because of a dispute over $491 in unpaid taxes and insurance. Photo: Jessica Hill, The Washington Post.

Among her clients is Dorothy Leong, 81, who is facing foreclosure on the modest two-bedroom home in Stratford, Conn., that she’s owned for decades because of a dispute over $491 in unpaid taxes and insurance. “It’s like they want me to fail,” she said. “I don’t want to lose my house.”

Her loan servicer, Financial Freedom, declined to comment on Leong’s case.

These loans give rise to other complications. Widowed spouses can find themselves fighting displacement if they were not named as a co-borrower in the original reverse mortgage documentation; that lapse has left many widows and widowers without a guarantee that they can stay in their homes until they die without immediately repaying the debt.

HUD guidelines now require people to prove within 90 days of a spouse’s death that they have a legal right to live in the homes.

Flynne, of Reverse Mortgage Solutions, said regulations make it hard to help widowed spouses stay at home.

“The last thing we want to do is rough up the elderly,’’ she said.

That’s little comfort to Gladys Olivier, who has been fighting to stay in her home in the Queens borough of New York since her husband died in 2012. The 65-year-old woman from Haiti said that she was told she would be able to continue to live in the home even though her name wasn’t on the mortgage.

Olivier said she was never notified about her right to apply to stay in the home and missed the 90-day window to state her claim. She obtained help from a nonprofit group, JASA–Legal Services for the Elderly in Queens, which stopped the foreclosure on her home a day before it was scheduled in January 2017. Her attorneys say the lender, now called Finance of America Reverse, will not even tell her how much money is owed. A company official declined to discuss Olivier’s case.

Olivier is consumed by stress and depression. The case is pending. “They can’t put me on the street like that,’’ she said.

Rayford, who is fighting to keep her Washington home, obtained a reverse mortgage in 2008 to pay off a $41,000 traditional mortgage and refinanced in 2011 to retire that loan and cover other expenses, receiving a one-time lump sum of about $60,000.

Rayford said she knew she was supposed to pay taxes but fell behind in 2013 following family financial troubles. She sought a repayment plan from her loan servicer, which denied the application, saying she couldn’t afford the monthly payments.

Rayford’s last hope is a new program launched last year in Washington to help struggling seniors. The District joined seven states, including Florida and California, that have created programs to help seniors catch up on their property taxes.

Money is allocated through the “Hardest Hit Fund,” created by the Treasury Department to help families in states most affected by the economic and housing downturn.

Rayford is awaiting word on her request to stop the pending foreclosure. She hopes to stay in the home she’s lived in since 1979.

“I would love to stay here until I close my eyes,” she said.

This report was co-published with the Washington Post and produced in partnership with the McGraw Center for Business Journalism at the City University of New York Graduate School of Journalism. NECIR interns Miranda Suarez and Debora Almeida were contributors.

The U.S. Department of Housing and Urban Development launched its reverse mortgage program in 1989, and seniors started to embrace the loan in the tens of thousands starting in 2005. But defaults and deceptive marketing have marred the program since its inception. The government has issued dozens of letters clarifying or amending the program. Here’s a timeline of some of the major events:


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Judge Says Jay Peak’s Quiros Can Keep $1 Million Tax Return

Montpelier — A federal judge is letting Jay Peak owner Ariel Quiros use a nearly $1 million tax refund to pay his $15,000-a-month living expenses as well as taxes and other bills for his properties not under receivership.

Quiros last week agreed not to challenge investor fraud allegations in a U.S. Securities and Exchange Commission case stemming from a series of developments at the ski resort and in nearby northern Vermont towns.

The SEC and attorneys for Quiros are negotiating how much, if anything, Quiros should pay in damages and penalties. The SEC alleges Quiros and Bill Stenger, the resort’s former president, misused $200 million of the more than $350 million they raised through the EB-5 visa program to fund those projects.

A court-appointed receiver recently requested that Quiros be allowed to use part of a $942,000 tax refund to cover his living expenses. Besides granting that request, the judge ruled the tax refund can be used to pay the roughly $216,000 Quiros owes in taxes, lease payments or maintenance fees for certain property he owns or controls.

The receiver, Quiros and the SEC “agree it is appropriate to allow Quiros’ frozen funds to be used to pay these expenses to preserve the status quo and the value of these assets” while the case is pending, wrote Michael Goldberg, the court-appointed receiver overseeing Quiros’ other assets, including Jay Peak ski resort, that are part of the SEC case.

“This will enable the value of these assets to be preserved for the benefit of investors if the SEC succeeds in its claims against Quiros or to be preserved for Quiros’ benefit if he proves successful in the outcome of this case.”

Judge Darrin P. Gayles previously had ordered that the $15,000-a-month living expenses come from a mortgage on a luxury condo Quiros owns in New York City. Those funds are no longer available because Goldberg paid off the mortgage to avoid foreclosure, according to the recent filing.

The judge’s new order allows the tax refund to be used to pay living expenses from September through December, which would lead to a four-month total of $60,000.

The tax refund check was directed to Quiros and his wife jointly, Goldberg wrote in the filing. The SEC and Goldberg have argued the entire refund is subject to an earlier court-ordered freeze of Quiros’ assets associated with the fraud case.

Quiros, through his attorney, has contended that only his half of the money is subject to that freeze.

To avoid litigation, all parties agreed Quiros will endorse the entire check to Goldberg for his firm to hold until there’s a final determination about the disposition of the refund, Goldberg wrote.

Goldberg wrote that he believes “certain of the properties were purchased or maintained with investor funds and the receivership may have a claim to those entities,” which would ultimately aid investors in recovering funds.

As of Aug. 16, the amount remaining from the tax refund is $652,250, according to the filing.

So far, the court has already approved Quiros using up to $275,000 of the refund to pay the attorneys he hired in March from the firm Damian Valori LLP. If Quiros is successful in his lawsuit against his insurance company for coverage of his defense costs, that money would be reimbursed to the receivership.

Quiros fired his previous lawyers in March, but they are suing to recover more than $3 million they say he owes them.

The receiver’s filing does not list the value of the properties, just the amount owed in the taxes. An attachment to the recent filing listed 30 entities on which Quiros owes taxes, maintenance fees or other costs.

The properties and other items on that list are among the assets frozen in the case, but are not part of the receivership, according to Melissa Visconti, the attorney representing Quiros.

“Because he has no money, all his money is frozen, all those cost have just been sitting there and mounting,” Visconti said Tuesday.

She declined to say exactly why Quiros and wife obtained such a large refund check other than for an overpayment of taxes.

Goldberg could not be reached Tuesday for comment.

For Quiros’ listed primary residence in Key Biscayne, Florida, he owes property taxes of $28,103 for 2016.

In another example, according to the filing, Quiros hasn’t paid a monthly fee for an office condo in Miami since the SEC case was filed in April 2016.

Quiros and his wife bought the office condo in March 2012 for $990,000, and the Miami-Dade property appraiser currently has it valued at $555,000, the filing states.

Quiros has also been leasing an 8,022-square-foot warehouse in Opa Locka, Fla., with a monthly payment of $2,782, which also hasn’t been paid since the filing of the SEC lawsuit. He is storing furniture, a boat, car parts, an off-road vehicle and two U.S. Army jeeps from World War II, the filing states.

Goldberg wrote that there is enough value in the items stored in the warehouse to keep paying the rent.

The listing contains 14 properties in Vermont, including 12 in Jay, one in Lyndonville and another in East Burke. The taxes on those properties range from $16,000 to a little more than $1,000. The properties include residences, condos and land.

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Rome on cutting edge for dealing with zombie properties

ROME — Rome is setting an example for the rest of the state on how to handle zombie properties under a new state law passed last year.

In a recent meeting with the Rome Common Council, Chief Code Enforcement Officer Mark Domenico said the city is getting ready to take action against Bank of America for a property it owns at 107 N. Jay St. This is the first action in the state to be taken under the new law.

“Believe it or not, Rome, New York, is the model figuring this thing out for the state,” Domenico said. “I called (someone from the state) the other day and said, ‘We’re ready to prosecute this. Enough’s enough; it’s been a month, no action. Let’s test it and see what we can do.’”

Zombie properties are vacant and abandoned homes that are not maintained during a prolonged foreclosure proceeding.

City officials were aggressive in finding information about the new law after Gov. Andrew Cuomo signed it, as well as learning how it applies to Rome, said Mayor Jacqueline Izzo. That law requires banks and lending agencies to keep up properties that are in foreclosure, and also will establish a state registry of foreclosed properties so the public knows who owns them.

The city wanted to find out how to create the database required by the new law and how they would be allowed and expected to enforce it, she said.

Rome already has a Real Property Committee, which has moved more than $1 million in foreclosed and abandoned properties back to the tax rolls through general sales and rehabilitation agreements, Izzo said.

“This is an offshoot of the closure of Griffiss Air Force Base,” Izzo said. “Our community had to react differently than maybe other upstate cities did because we lost so much population and so many rentals all at once. So we really had to be on the forefront of figuring out how to deal with this problem of a lot of surplus property coming onto the foreclosure list.”

Those successes encouraged the city to apply for a $150,000 grant to help establish the database. The grant was awarded to the city and then partnered with Rome Main Streets Alliance to go through the city and document all of the zombie properties and those that are abandoned.

From there, Rome Main Streets has created two positions that are responsible for going through each street, neighborhood by neighborhood, and finding houses that match the zombie property classification. As of last week, the pair had made it through wards one and two and part of three.

The pair is looking at every vacant property in the city.

“The only thing that is eligible to be under this zombie law, it’s only for one-, two-, three- and four-family homes, anything else it’s not eligible,” Domenico said. “The other thing is it has to have a bank interest in it in the way of a mortgage. … If it’s a bank-owned property, it’s not a zombie. It has to be a property that the bank has a mortgage interest in, period. That is critical.”

David Amidon, president of Rome Main Streets, said the city’s ability to be on the forefront of this zombie property legislation puts Rome in a positive light. He said having the two staff members go around and audit the city’s vacant properties will hopefully help boost the city and get more people paying property taxes.

“We’ll hopefully start to see some action in some of these vacant properties being at least brought up to codes and hopefully if we can get ahold of them, make them livable and get people in there, contributing to our tax base,” Amidon said.

Follow OD_Madison on Twitter or call her at 315-792-5015.

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HUD grants foreclosure relief to 200000 Harvey victims

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The Department of Housing and Urban Development is granting immediate foreclosure relief to 200,000 homeowners with mortgages insured by the Federal Housing Administration (FHA).

HUD announced the move Monday after President Donald Trump issued a declaration of disaster for certain Texas counties. The declaration allows HUD to provide families impacted by the hurricane with mortgage and foreclosure relief, among other forms of assistance.

With the foreclosure assistance, FHA-insured homeowners in the covered counties have been granted a 90-day moratorium on foreclosures and forbearance on foreclosures.

As part of its relief efforts, HUD is also making insurance available for mortgages and home rehabilitation. Hurricane victims may avail themselves of FHA insurance in case they lost their home and face the need to rebuild or buy another home. Through participating lenders approved by the FHA, borrowers may obtain 100% financing.

Under a separate loan program, the HUD allows disaster victims who have lost their homes to obtain a single mortgage that will finance a home purchase or refinance along with its repair. Through this program, homeowners whose homes sustained damage can finance the rehabilitation of their existing single-family home.

The HUD’s assistance efforts also include helping the State of Texas and local governments reallocate existing federal resources for disaster relief; loan guarantee assistance for housing rehabilitation, economic development, and repair of public infrastructure; and sharing information on housing providers and department programs.

“Today, our thoughts and prayers are with those who are beginning the process of recovering from Hurricane Harvey,” said Housing and Urban Development Secretary Ben Carson. “As FEMA begins to assess the damage and respond to the immediate needs of residents, HUD will be there to offer assistance and support the longer-term housing recovery efforts.”

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27 foreclosed homes, properties in Eaton County headed for auction






Eaton County’s annual foreclosure auction Sept. 7 will feature 27 properties located throughout the county.
Rachel Greco/Lansing State Journal

HAMLIN TWP. – The one-story, three-bedroom ranch-style house on Durfee Road just outside Eaton Rapids is tucked away on five acres, but barely visible from the road, obscured by trees on either side of the property’s dirt driveway. 

On Monday morning, Eaton County Treasurer Bob Robinson was sheltered from the rain, standing on a covered wooden platform just outside the home’s side door next to a three-bay barn.

Inside the home is musty and empty, with the exception of a few pieces of worn furniture.

But Robinson said the house, one of 27 foreclosure properties throughout Eaton County set to be auctioned off to the highest bidder Sept. 7, has good bones. That, and its starting bid price of just over $11,000 (a fraction of what its worth) make the place a steal, Robinson said. The home has a state equalized value of $57,574.

“I have an affinity to seeing homes like this renovated,” he said. “This would make a great country home for somebody.”

But even if the buyer demolishes what exists and builds a new home on the land, Robinson said the county will still benefit when the property is back on the tax roll.


Eaton County prepares 40 foreclosed homes for auction

Former opera house back on the market in Charlotte

One-of-a-kind Tudor will go to the highest bidder

The Sept. 7 auction is the county’s second annual locally-hosted foreclosure auction. In previous years Eaton County’s foreclosed homes and other property were auctioned off by the state. 

This year’s listings are rough around the edges. Two-thirds of them are residential homes scattered throughout the county and some are vacant property with potential. There’s even a shuttered mobile home park in Eaton Rapids, complete with condemned mobile homes still sitting on the land. 

Robinson said all of them represent opportunity, in the right hands.

“There’s a lot of people in Eaton County who are good at renovating homes, who may flip it, who may live in it. That improves the economy locally. By getting these to private people you significantly reduce the return of the properties into foreclosure.”

Variety up for bid

The state auctions off foreclosures in just nine counties throughout the state, including Clinton and Branch counties, Robinson said. The rest conduct their own auctions.

Locally, auctioning off the properties in-house has saved Eaton County an estimated $300,000 over the last two years in fees it previously paid to the state, Robinson said.

Whatever the county makes is put toward paying off back taxes owed on the foreclosed properties. In fact, each property’s starting bid is whatever is owed in delinquent taxes.

The rest of the auction’s profits stay within the county’s foreclosure program, financing the cost of preparing other foreclosure properties for auction each year.

Robinson said nearly all of last year’s bidders were local. He expects to see the same this year.

Those that show up can expect to see a variety up for bid, but the house on Durfee Road is “typical,” Robinson said.

Others include properties on Narrow Lake in Brookfield Township, as well as homes in Delta Township, Charlotte, Eaton Rapids, Bellevue and Nashville. A interactive map, with photos and property details, can be found online at .

Robinson said the mobile home park, on Haven Street, was foreclosed on in April. Most of the 18 mobile homes on site aren’t up to code and were vacant before foreclosure. All of them need to be removed, Robinson said. 

“It’s a difficult property,” he said. “It was sadly out of code, sadly out of any kind of compliance.”

The starting bid on the park, which sits on one acre, is just over $40,000 and Robinson said it’s very possible no one will buy it on Sept. 7.

Properties that aren’t sold at that auction will go up for sale again later in September, with a starting bid equal to what the county spent preparing them for auction. That can drop the price by thousands of dollars, Robinson said.

“It’s usually a small percentage, but I’m going to have a couple that I don’t believe are going to sell at all,” he said.

There were only a handful of properties that didn’t sell at auction last fall. Most of those were small, vacant parcels the county then sold to adjacent property owners, Robinson said. Only one, an empty lot in Delta Township, wasn’t sold. That will be part of the Sept. 7 auction.

Some advice – Do your homework

Those who come to auction, which will be held at the Eaton County Government Complex in Charlotte, should do their research first. Homes are sold as is.

Robinson said potential bidders should drive by the property they’re interested in, and contact the city or township it’s in. Their staff can tell you what the home’s annual property taxes are and if there are any special assessments on it.

“They need to know what they’re buying,” Robinson said. 

Be aware of a few other things.

The cost of a bidding paddle is $1,000. That’s refundable if you don’t buy a property, but if you do put in the winning bid on a foreclosure you’ll need to pay 10% of the price at the auction. The rest of the purchase price is due within 14 days.  

Robinson said the county does contact the second highest bidder on a property, in the event that a property’s buyer doesn’t go through with the sale.

Auction details

Eaton County’s annual foreclosure auction will feature 27 properties located throughout the county. It’s scheduled for 6 p.m. Sept. 7 at the Eaton County Government Complex, 1045 Independence Blvd. in Charlotte. Registration begins at 5 p.m. Learn more about the auction at:


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Lorain acts on defaulted loans before HUD comes calling

LORAIN — The city is continuing to try and right the ship in the wake of the crumbling of the Lorain Development Corp. more than a year ago.

Foreclosure lawsuits have been filed in Lorain County Common Pleas Court regarding some of the bad loans related to the program, which dispersed the loans to small businesses in the city that were looking to start or were in danger of closing.



The city cut its ties with the program in the spring of 2016 when it came to light that $600,000 in loans had been written off by the program’s board and thousands of others were delinquent.

“This isn’t how business works,” Building, Housing and Planning director Kellie Glenn said. “You can’t just stop paying back money that you owe people. If we had been a regular bank, this would not have gone on for so long.”

Glenn said the city is hoping to get the money back for the loans because the Lorain Development Corp.’s funder, the U.S. Department of Housing and Urban Development, is going to want it.

“We’re going to have to pay HUD for this,” she said. “We don’t know how much yet, but HUD is going to want some of their money back because the program isn’t viable anymore.”

Glenn said the program was started in 2001 and the process of writing off loans and letting them go into default went on too long.

According to new Building, Housing and Planning Department policy, after the first time a borrower is late, a general late notice will notify them a payment hasn’t been received.

Once a payment has been late for 30 days, the borrower will receive a notice that the amount to make the loan current is due immediately. Once a payment has been late for 60 days, the borrower will receive a notice that the loan has to be made current or collection procedures will commence.

“If the loan is not made current by the date provided in the 60 days (after the first) late notice, the loan is considered to be in default and a default notice will be sent advising that the entire amount of principal, interest, and fees outstanding on the loan is due within 15 days,” the policy says. “After the 15th day, the loan is forwarded to the city Law Department for foreclosure or judgment.”

“The problem is, there’s only so many notices you can send people,” she said. “But there wasn’t a lot of follow-through before either, and that was a problem.”

Glenn also noted the FBI investigation regarding the program, which began last summer, is still going.

Some of the organizations that have taken out loans that have lawsuits filed against them include Marxan Solutions, a company owned and operated by school board member Mark Ballard.

According to records from the city’s Building, Housing and Planning Department, Marxan has a $138,410 loan balance, but Ballard said the foreclosure lawsuit, which was filed July 25, is on the way to being resolved.

“I’ve been in talks with the mayor, and it’s been resolved,” he said.

Mayor Chase Ritenauer confirmed the matter was in the process of being resolved through a loan modification.

Glenn said loan modifications would be an option for some, but with almost $1.2 million in defaulted loans between the Lorain Development Corp. and rehab home loans, that won’t be a possibility for everyone.

The largest loan in default is the one for former Broadway business Driscol Music Co. for $232,660. The business has closed.

Attorney Anthony Baker, who represents Elyria Avenue’s Worship Cathedral, which also received a loan, said he doesn’t think there was much intervention on the part of the city regarding the loan.

“From what I’ve been able to tell, the loan was for rehab on the building, but the work wasn’t done properly, and so they had to pay more money to fix it,” Baker said. “We’re not disputing the loan itself, though.”

Contact Katie Nix at 329-7129 or Follow her on Twitter @KatieHNix.

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Counsel’s Corner: Matthew J. Richardson

Matthew J. Richardson is Manley Deas’ Director of Litigation and Compliance. Throughout his career, he has practiced in the areas of commercial and financial services litigation and currently focuses his practice on defending mortgage servicers in trials and appeals. Before he began practicing, Richardson clerked for the Honorable Howell Cobb in the Eastern District of Texas.

What obligations do the new RESPA loss mitigation regulations impose on servicers?

Broadly, the new RESPA loss mitigation regulations require that servicers develop effective policies and procedures for reviewing loss mitigation applications and for communicating with borrowers once their loans are in default (12 C.F.R. 1024.38 -.41). More specifically, the regulations require that servicers review timely submitted loss mitigation applications for completeness and for any applicable loss mitigation resolutions. The regulations also require servicers to conduct their reviews of loss mitigation applications within a reasonable time frame and to communicate to borrowers if their applications are complete and whether borrowers are entitled to any loss mitigation resolutions. Finally, if borrowers are denied for the prospect of a loan modification, the regulations require that servicers provide borrowers with the specific reasons that they were denied and further to provide the notice that the borrowers may appeal the denial to different personnel employed by the servicers.

What rights do borrowers have under the RESPA loss mitigation regulations?

Borrowers generally have the right to induce their servicers review one single, complete, and timely submitted loss mitigation application submitted on or after January 10, 2014, the date the regulations took effect. The RESPA loss mitigation regulations also give borrowers the right to delay a number of milestones in the foreclosure process if they do submit timely and complete loss mitigation applications. Section 1024.41 of the regulations entitles borrowers to delay the following milestones, if the borrower has submitted a compliant application: (i) the initial filing of a foreclosure action, (ii) any motion for judgment that the servicer might file, and (iii), most importantly, a judicial sale of the mortgaged property. If servicers violate these regulations, borrowers have the right to recover actual damages caused by the violation, costs of an action filed against the servicer, and attorney fees. Statutory damages can be recovered if the borrower demonstrates that the servicer engaged in a pattern or practice of violating the regulations.

It is also important to note what rights borrowers do not have under these regulations, but which they may attempt to assert nevertheless. Even if they establish liability against a servicer for violating these regulations, borrowers are not entitled to rescind a foreclosure sale. The regulations do not provide borrowers with the right to equitable or injunctive relief, but only to recover damages, costs, and fees.  Also, as the regulations expressly state in 12 C.F.R. 1024.41, borrowers are not entitled to any specific loss mitigation resolution, regardless of whether they submit a timely and complete loss mitigation application. Nor are the borrowers given the right to enforce an agreement between the servicer and the investor to achieve a desired loss mitigation resolution. Instead, borrowers’ rights under these regulations are limited to induce the servicer to review the application, to delay the start or the progress of a foreclosure action while the review is conducted, and to trigger the duty of the servicer to communicate the results of the review. 

But note that the borrowers will have greater rights once a revised version of Section 1024.41 goes into effect on October 17, 2017. Borrowers will have additional rights to receive disclosures when they are under a forbearance or repayment plan. Also, borrowers will be able to hold transferee servicers to the same duties as servicers that transferred the servicing rights to a new servicer, when a loss mitigation application was pending with the transferor servicer.

What rights do servicers have under the loss mitigation regulations?

Servicers are not required to review untimely submitted loss mitigation applications, specifically those that are submitted less than 37 days before a foreclosure sale.  The Consumer Financial Protection Bureau, which drafted the regulations, did not want to create an incentive for borrowers to avoid foreclosure sales merely by submitting loss mitigation applications that cannot realistically be reviewed before the sale.

Additionally, the regulations benefit servicers by defining a complete loss mitigation application liberally as “an application in connection with which a servicer has received all of the information that the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower.”  In this respect, servicers are held to a “reasonable diligence” standard to collect additional documentation when loss mitigation applications are incomplete.

Finally, servicers are only required to review one complete loss mitigation application after the effective date of the regulations, January 10, 2014, and multiple loss mitigation applications need not stop the progress of a foreclosure action once a complete application has been reviewed and did not result in a resolution.

What rights to litigate the loss mitigation regulations do borrowers have?

With the exception of Section 1024.41, borrowers do not have a private right of action under RESPA Section 2605(f) to litigate claims that servicers have violated these regulations.  Federal district courts have denied that borrowers hold the right to enforce provisions of these regulations: (i) requiring servicers to enact loss mitigation policies and procedures (Section 1024.38), (ii) to make early live contact with borrowers regarding loss mitigation options (1024.39), and (iii) to ensure continuity of contact with borrowers (Section 1024.40).  Instead, the full extent of borrowers’ rights to enforce the loss mitigation regulations is contained in Section 1024.41.  Furthermore, as with all RESPA claims, borrowers must have suffered actual damages caused by the servicers’ violation of the loss mitigation regulations to establish liability.

What are some of the trends in loss mitigation litigation?

In many cases, borrowers have asserted claims against servicers without understanding the limited nature of their rights under the regulations. Often borrowers fail to acknowledge that they cannot rescind judicial sales by asserting actions against servicers under these regulations and that they are only entitled to review of one complete and timely submitted loss mitigation application.

For these reasons, borrower complaints in district court are frequently dismissed for failure to state a claim under Rule 12(b)(6). Under Rule 12(b)(6), complaints are subject to dismissal if they do not contain sufficient factual allegations to enable the trier of fact to conclude that the defendant is liable. This can easily occur when borrowers attempt to assert claims under these regulations for which they have no private right of action or when they cannot allege that they submitted a timely and complete loss mitigation application to the servicer. Nor do the regulations bind assignees or investors, only servicers, and nonborrower spouses lack the standing to recover under the regulations.

What are some of the better strategies to defend against borrower claims?

At this time, probably the way to defend against borrowers’ claims against servicers under these regulations is to challenge whether the borrower’s pleading contains sufficient facts to state a claim against the servicer for a violation under Section 1024.41. 

However, several district courts are taking notice that many borrower claims are so fact-intensive as pleaded that the district court will deny a servicer’s motion to dismiss.  For instance, if the timing of the borrower’s submission of a loss mitigation application leaves doubt as to when the application was complete and submitted, the district court may deny the motion to dismiss. District courts may also deny the motion because all reasonable inferences of fact are resolved in favor of the borrower under the 12(b)(6) standard, and the remedial nature of the loss mitigation regulations requires that the regulations be liberally construed in favor of the borrower.

Besides a borrower’s failure to allege the correct facts against a servicer to support a violation, the borrower’s complaint could nevertheless be subject to dismissal under the applicable state’s res judicata doctrine or the federal Rooker-Feldman doctrine. If the borrower had the opportunity to raise the alleged violation in state court or did raise it, the federal court may dismiss for lack of jurisdiction.

If borrower claims are not resolved through the servicer’s filing a motion to dismiss, they may be resolved at summary judgment as the correct dates and documents submitted are put before the court. But trials are a possibility when real factual disputes arise regarding whether servicers complied with their duties within the applicable time frames.

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