washingtonpost.com
Amid mortgage mess, owners are blindsided

By Dina ElBoghdady
Saturday, October 30, 2010; A01,A12

After Valarie Stovall fell behind on the mortgage on her home near Hagerstown, her lender agreed in April to slash her monthly payment by $300, and she immediately started paying the reduced amount.

That's why, Stovall said, she thought nothing of the yellow flier she ripped off her screen door as she returned from the grocery store one afternoon last July.

"Then I read it and went 'Oh my God,'" she said. "It was a notice of eviction."

Across the country, struggling homeowners are increasingly tripped up by mortgage lenders that press ahead with foreclosures regardless of any effort they make to provide borrowers with relief on unaffordable mortgages.

Amid the worst housing crisis since the Great Depression, mortgage companies have established a dual-track approach toward troubled homeowners, negotiating with them over loan modifications while trying to seize their homes.

Top government officials have been urging lenders to redouble their efforts at modifying burdensome loans and have barred lenders from foreclosing on homeowners who are seeking to rework their mortgages under a federal program. Mortgage companies, however, have continued to pursue this two-track strategy, with a widening toll especially on those homeowners who have been trying to resolve their mortgage difficulties before they snowball, according to federal and state officials and consumer advocates.

During the last month, several major lenders have temporarily halted thousands of foreclosure cases amid reports that fraudulent court documents and improper procedures have been used to evict people from their homes. But disarray within the mortgage industry goes much further. And the foreclosure pause has done little to address the common industry practice of taking homes from people who'd been led to believe they could save them.

"It's still happening everywhere," said Arizona Attorney General Terry Goddard, who has tried to bar the dual-track process in his state, one of the hardest hit by the foreclosure crisis. "It's one of the largest complaints I get. . . . The lenders need to make a choice. What do they want: a foreclosure or a loan modification?"

In Centreville, Woodrow Roberts III said he enrolled last October in a loan modification program with Bank of America. At the time, he was still current on his $3,000-a-month payments but wanted some relief until he could find a second job. The bank agreed to trim the monthly payment by $600 for a three-month trial period and consider Roberts for a permanent modification, he recalled.

After three months, he said, he heard nothing from the bank. "I called in every week to see the status of my loan," Roberts said. "After a year of phone calls and no real information, I received a letter in the mail." It said he had been rejected for a modification and that he owed more than $8,800 - the total he'd thought his payments had been reduced over the course of the year plus fees. If he didn't pay, the letter warned, his home would be sold at a foreclosure auction Nov. 12.

"If I knew this type of program could risk everything, I would have never entered into this program," Roberts said. He explained he can't afford to pay the sum demanded all at once and hasn't been allowed to spread it out over time.

In response to a reporter's question about the case, Bank of America spokeswoman Jumana Bauwens said Roberts was turned down for a permanent loan modification under the federal program because his income was too high to qualify. But she said the bank is now reviewing whether he is eligible for alternative relief.

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.

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.

Stovall said she made each payment on time, in May and June. But shortly after making the June payment, she received a foreclosure notice.

"I called SunTrust and they said: 'Don't worry about it. The loan modification and foreclosure programs run parallel with each other and as long as you're in the loan modification process, nothing will happen,' " she said.

Still uneasy, Stovall called the bank's foreclosure lawyer, who reassured her that the lender was correct. She sent in her July payment. The foreclosure notices kept coming and Stovall kept calling. SunTrust told her that the foreclosure sale couldn't be put on hold until a date for the sale had been scheduled. The bank told her to call back 10 days before her home was to be auctioned off.

"That made me really nervous, but their attorney said the same thing," she said.

In June, with the sale date set for July 9. Stovall reached a SunTrust representative who told her she would go ahead and put a stop notice on the foreclosure sale. But when Stovall called back a few days before the scheduled sale, there was no such notice entered on her record. A SunTrust supervisor asked Stovall to resubmit her bank statements and other paperwork, and Stovall did.

Five days after the sale date, the eviction notice arrived. It looked like so many other fliers that regularly appear on her door step from lawn care services and house cleaners trying to solicit business. She glanced at it only after putting down her grocery bags. "That's when I lost it," Stovall said.

Stovall managed to reach the supervisor she'd spoken to only days earlier. "First she said she never received the paperwork," Stovall said. "Then she said: 'Oh, here it is. I found it. You don't qualify.' "

There was no further explanation. Stovall was told the supervisor's supervisor was not available. By then, her property had already been taken back by the bank.

SunTrust would not comment about the case for this article.

Stovall's lawyer asked a local court to dismiss the foreclosure case. SunTrust sent her lawyer an e-mail, saying it would negate the sale.

But the case itself was not dismissed, leaving open the prospect of another foreclosure sale.

So Stovall sued SunTrust. The case is pending in federal court in Maryland.

"I am just sitting here biting my fingernails," she said. "I have good days, when I think it's going to work out and then sometimes I have panic attacks and I cry in jags. Even though I know in my heart that I'm right, I don't know what the courts are going to do."

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