Foreclosure Stories: The carrot and the stick

Feb 16, 2012


This is a weekly column by Sandusky attorney Dan McGookey, devoted to telling true stories of homeowners who have been victimized by a lending system which makes it profitable to foreclose. The names used have been changed for privacy purposes. This is Phil's tale.

With income from his carpet-laying business down in late 2008, Phil began to worry about keeping up with his $750.00 per month mortgage payment to Well Being Mortgage Company.  With four young children, it was critical for Phil and his wife to do everything possible to keep their family together in the home they had lived in for years.

With that in mind Phil contacted Well Being in early 2009 to inquire about a loan modification which would lower his monthly payment.  At that point, Well Being told Phil that it would modify his loan if he fell three payments behind.  Doing as he was told, Phil deliberately went into default, believing that his problems were over.  Unfortunately, Phil soon found that his nightmare was just beginning.

To his dismay, upon receiving the written modification agreement in May 2009, Phil discovered that Well Being added an up-front payment of $8,000.00 in order to proceed with the modification. That payment was not mentioned before, and Phil did not have money to make it. Being well in default on his payments, Phil was then left at the mercy of Well Being. The noose around his neck tightened further still when Phil received a foreclosure compliant in the mail only days later. Well Being’s duplicity was fully exposed when Phil noticed that the foreclosure was actually filed two months earlier, in March 2009. This was when the bank was repeatedly assuring him that a modification was in the works.

Even after he received the foreclosure complaint, Well Being continued to tell Phil it was going to work with him to modify his loan. This time, however, Phil knew better than to believe the bank’s false promises. Instead of heeding the advice to simply ignore the complaint because a modification was imminent, Phil sought legal counsel at McGookey Law Offices.  Knowing that Well Being had no real intention of working with Phil in good faith to modify his loan, we entered a vigorous defense to the foreclosure by submitting written discovery (questions designed to gather information about the case), and then taking the deposition of Well Being’s representative. Through that process, we exposed some fundamental weaknesses in Well Being’s case which may have lead to the dismissal of the foreclosure.

Fortunately, the process didn’t have to go all the way to a court determination. That was because Well Being suddenly announced that Phil and his wife qualified for the loan modification under the federal governments Home Affordable Modification Program (HAMP).  This announcement was made even though HAMP requires banks like Well Being to try to qualify homeowners before filing foreclosure (which Well Being never did), and generally prohibits homeowners who are in default in their payments for more than one year from qualifying (Phil was over two years in default).  So, despite not making a payment for over two years, raising his unpaid loan balance to over $130,000, Phil’s balance was lowered to approximately $67,000.  In addition, his interest rate was reduced from 7.5% to 2% for the first year, graduating up to a maximum of 5%.  In all, Phil’s monthly payment was cut by about 60%.  With this reduction, Phil and his family are safely in their home for as long as they want to be.

Phil’s story is an excellent example of the success of what I often call “the carrot and the stick approach” to getting financially distressed borrowers relief on their mortgages. The carrot is the spirit of cooperation in dealing with the bank in giving in all the financial information it says it needs to consider the homeowner for a loan modification.  Unfortunately, as is graphically displayed by Phil’s case, often times the banks are not interested in giving the borrower real relief, even if federal law requires them to do so.  In other words, they reject the carrot offered by the homeowner.  The reason — because it is profitable for them to foreclose.  Rather than eat just one carrot, they see the opportunity to get five, and that’s where the stick comes in.  When the bank starts pulling away from the carrot offered you must be prepared to pull out the stick — aggressively defending the foreclosure by exposing all of the weaknesses in the bank’s case, which there always are.  When hit over the head with the stick, the bank will realize that the carrot offered is as good as they’re going to do and will relent by giving a good loan modification, one which is built to succeed, rather than fail.

Next week:  The story of Ida, who due to a close friends’ sudden death, was several days late on a trial plan modification payment, only to end up back in foreclosure.

Copyright 2012 Daniel L. McGookey