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 Bill's Tale.
I recently was in the Court of Appeals arguing the case of Bill. Bill had suffered a default judgment against him when he failed to file an answer to the foreclosure complaint against him within the time permitted by the rules. Of course, as I see so often, Bill’s bank, PNB, had repeatedly assured him both before the foreclosure was filed and after, that he did not need to worry about the court case and not enter a defense (as I refer to it, to “put his guard down”), only to be victimized by the adverse judgment.
Acting naively and believing what PNB told him, it was months after the judgment that Bill came in to see us. And he had a compelling story to tell. First, his loan was owned by Freddie Mac, a government-owned entity formed decades ago for the very purpose of promoting home ownership. Unfortunately that purpose has been abandoned so that now Freddie and its cousin Fannie Mae, have been turned into nothing but tools used by our biggest banks to quench their insatiable thirst for profits. Because Bill’s loan was owned by Freddie, PNB, the loan servicer (not the owner), was, at least on paper, supposed to follow a number of rules called Servicer Guidelines, meant to keep people like Bill out of foreclosure, if at all possible. The problem Bill had, as millions of Americans do, is that the loan servicers like PNB never follow the rules as it is profitable for them to foreclose. Thus Bill never was offered a face-to-face meeting to try to accomplish a work-out, never had his home appraised to determine how much the government would lose by forcing foreclosure, nor were there any home-retention options whatsoever offered to Bill prior to foreclosure. The only thing PNB gave was an empty promise that it would work things out with Bill, which he believed to his later regret.
The second opening in Bill’s story presenting an opportunity to get the judgment reversed was PNB’s false statement that it was going to give him a loan modification, thereby convincing him to “drop his guard” and not contest the legal action. Courts are generally protective of their judgments; they are loath to set them aside. In order to be successful in getting a court to vacate a judgment, you must convince the court that there is a compelling reason for them to do so, such as “excusable neglect” or fraud on the part of the other party.
Finally, Bill’s story contained what I believe will be the decisive element which will end up in reversal of the trial court’s foreclosure judgment: the final long-awaited modification proposal offered two months after judgment, tacked on $58,000 to his loan balance and raised his monthly payment from approximately $1,300 per month to over $2,200 per month. And the real kicker – the proposal required Bill to pay $27,000 in attorney fees; $27,000 for filing the Complaint and Motion for Default Judgment! This when Freddie Mac rules expressly prohibit a servicer from charging attorney fees in loan modification situations.
As I argued these points in the Court of Appeals, the judges listened with great interest. They found the last point particularly interesting, and I firmly believe they will reverse the judgment and give Bill the chance he deserves ( and as required under Freddie rules) to modify this loan, and save his home. The lesson in Bill’s story is one I see all the time: The judicial system is fraught with an underlying prejudice against anyone sued for foreclosure. The initial inclination is that the defendant is unwilling to pay back the sum borrowed. This prejudice is a natural offshoot from the days of traditional lending wherein the bank that originated the loan held onto it. In the traditional lending model, banks lost money when they had to foreclose. Just the opposite is true with securitized lending – it is profitable to foreclose. That being so, good honest people are trying every day to work things out with their mortgages only to have “sand kicked in their face.” So mortgagor beware. Your bank is not your friend! It has dollar signs in its eyes every time it looks at you. Act accordingly.
Note from the author: If you have questions or comments regarding this or any Foreclosure Story article, please visit www.mcgookeylaw.com.
Next week: the story of The Sharpes, who after reaffirming their home loan in bankruptcy, and making thousands of dollars in payments thereafter, still ended up being sued for foreclosure by their bank.
Copyright 2012 Daniel L. McGookey