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Amid mortgage mess, owners blindsided

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Kevin Matthews, a Gulf War veteran, was initially rejected when he applied to his lender, USAA, for a modification of the mortgage on his Baltimore rowhouse. But when a housing counselor contacted USAA on his behalf, the lender invited him to reapply, Matthews said. The counselor filled out a 70-page application for Matthews in early May.

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The lender did not respond to this new request until after his home was taken away in a foreclosure sale two weeks later, he alleged. He was evicted in June while he was away on school-related travel.

Roger Wildermuth, a USAA spokesman, said his firm was no longer responsible for Matthews's loan because it had been sold to GMAC, though GMAC employees in his case would have identified themselves as USAA workers "to create a seamless customer experience." James Olecki, a GMAC spokesman, said his firm "put forth every effort to pursue all alternatives in this case."

Matthews is now suing the foreclosure attorneys. If he loses, the tab for his defaulted loan would fall on taxpayers because his mortgage is guaranteed by the Department of Veterans Affairs.

"It's like the right hand doesn't know what the left is doing," said Michael J. Gugerty, a real estate attorney in the District. "I think what happens is you can talk to the loan modification people but that doesn't take you out of the assembly line they've set up for foreclosure."

The Mortgage Bankers Association said lenders often file initial foreclosure paperwork as they work to modify a loan. John Mechem, an MBA spokesman, said they want to make sure that if the modification effort fails, they can promptly move forward with the foreclosure, which can take up to three years to complete depending on the state. Fannie Mae, Freddie Mac and the Federal Housing Administration impose deadlines for filings on loans these agencies guarantee or own, he said.

But Phillip Robinson, a lawyer at the nonprofit law firm Civil Justice Inc. in Baltimore said, "Attorneys and housing counselors here and all over the country complain every day about this kind of thing."

In June, the Obama administration tightened the rules for the government-sponsored program, which pays lenders if they rework a borrower's loan, to ban mortgage companies from conducting a foreclosure sale unless the modification has already been denied. The administration also ordered lenders to notify the lawyers handling foreclosures on their behalf that a borrower does not qualify for a modification before a sale can proceed.

Valarie Stovall has taken the matter into her own hands. After the eviction notice was taped to the door of her house in Williamsport, Md., near Hagerstown, she sold every piece of jewelry her mother left her - including a platinum and diamond ring passed down in her family for generations - to hire lawyers, she recounted.

They told her "'do not leave the house unoccupied for any reason. If somebody comes to the house and tells you that you have to leave, call the police,' " Stovall said. "I was afraid to go to the grocery store, afraid to go anywhere for fear of what would happen."

Stovall first bought her two-level colonial in 2004. Five years later, when a back injury forced her to leave her job arranging dental board exams, she retired and applied to her lender, SunTrust Bank, for a loan modification because she feared she would fall behind, she said.

In April, eight months after she applied for relief, the bank approved Stovall for a three-month trial modification that reduced her monthly payment to $543 from about $830.

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