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Foreclosure: Losing the American Dream

Homeowners get the run-around when they seek mortgage modifications

By Mc Nelly Torres
ConsumerAffairs.com

August 31, 2009
On a recent day, Michelle McCloskey began to pack her belongings from her four-bedroom Phoenix home, scheduled to be sold at auction Sept. 3. McCloskey, a litigation specialist and single mother of two teens, lost her home to foreclosure.

She tried to modify her $411,000 mortgage to lower the monthly payment after she lost income. But Litton Loan Servicing denied the application because she was not delinquent on her payments.

McCloskey, 47, stopped paying her mortgage in February in the hopes that Litton would modify her loan to a payment she could afford.

“They kept denying the application and didn’t say why,” McCloskey said, adding the value of the property is now about $150,000 lower than when she bought it. “I could never get anybody on the phone to answer my questions.”

Michelle McCloskey in front of her foreclosed home.

In Santa Barbara, Calif., Michele Cheverez is in the process of moving out of the only home she’s known for 20 years. Her condo was put up for auction on Aug. 10 after Litton denied a mortgage modification and began a foreclosure action.

Cheverez, a state employee, said she couldn’t afford to make her payments after her pay was cut earlier this year. Cheverez, who bought the property for $200,000 in 1988, said she sent her application and documentation to Litton three times after the staff claimed they didn’t receive the paperwork.

“My house is gone and I’m still waiting to find out why,” said Cheverez, who learned about the auction on July 21 after a “notice of trustee’s sale” was taped on her front door. “All I wanted was my payment to come back to $2,208 from $2,934 with an adjustable rate.”

Common thread

Litton, based in Houston, Texas and owned by Goldman Sachs, handles the operations aspects of consumer loans including sending out statements, receiving and tracking payments, notifying consumers of overdue payments and initiating foreclosure proceedings.

ConsumersAffairs.com has received dozens of consumer complaints -- including Cheverez and McCloskey -- stating that Litton promised loan modifications, but the process dragged out and they were told months later that they did not qualify. In many cases, consumers sent documentation multiple times after staff claimed they never received it, putting consumers in a dangerous situation because they got closer to foreclosure because of the delays.

In April, Litton settled a class-action lawsuit alleging that the company failed to credit borrowers' mortgage payments in a timely fashion, then turned around and charged late fees for the purportedly tardy payments. In some cases, consumers' accounts were put into default. The suit covered all homeowners whose mortgage transaction was transferred or sold to Litton between October 2002 and February 2009, and who were charged erroneous late fees within 60 days of the transfer.

But even after the settlement, consumers continue to complain that Litton fails to post payments in a timely manner and subjects them to a run-around when they try to modify their mortgage.

Litton's response

Donna Marie Jendritza, a Litton spokesperson said in a written statement, that Litton Loan Servicing does not provide specific comments about its customers due to privacy restrictions. But she said the company was looking into the handling of the specific cases we inquired about.

“We take complaints from our customers very seriously,” Jendritza wrote. “Litton has a dedicated department that handles customer inquiries and determines a course of action to resolve a matter if an issue exists.”

Jendritza said that if a customer has a question or concern, he or she should contact the Customer Care Department at (800) 247–9727 or mail a written inquiry to:

Litton Loan Servicing
4828 Loop Central Drive
Houston, Texas 77081

"Litton modified more than 44,000 loans, representing about 10 percent of its loan portfolio in the 12 months prior to the announcement of the Home Affordable Modification Program (HAMP), according to the statement. Currently, Litton has offered more than 39,400 trial modifications to our customers using terms in accordance with the principles of HAMP and more than 28,900 have accepted and started their trial modifications," Jendritza wrote.

Practice suffered

“I never thought I would find myself in this situation,” said Gene James, a chiropractor in Phoenix, who lost his six-bedroom house where he raised five children, ages 5 to 15.

James, 52, lost the home where he lived with his family for 14 years.

James applied to modify his $520,000 mortgage after he fell behind his mortgage payments in February because his private practice lost revenue as the economy staggered, he said. An auction on the property took place in July.

“They never accepted any e-mails and I didn’t have much correspondence with anybody,” James said. “They don’t keep documentation very well.”

Nationwide, homeowners are struggling to make their mortgage payments and over a million homes have already been lost to foreclosure, according to the Center for Responsible Lending, a consumer watchdog group based in North Carolina.

Consumer advocates contend the federal government could save billions of dollars worth of mortgages if bankruptcy judges had the option to modify loans on primary residences.

“We believe we are not going to get out of this bad situation until those [foreclosures] numbers are reduced and a bankruptcy provision is passed by Congress,” said Kathleen Day, a spokeswoman for the Center for Responsible Lending. “If the government makes changes on bankruptcy law, they will be able to help millions and quickly.”

The Mortgage Bankers Association reported recently that 1 of every 12 borrowers was seriously delinquent, defined as 90 days delinquent or in foreclosure. The report, released on Aug. 20, shows record levels of delinquencies in the second quarter of 2009 compared with last year, when 1 in 22 borrowers was delinquent and two years ago, when 1 in 40 was.

“Moreover, no segment of loans (subprime, prime and FHA) has been immune to this deterioration,” the MBA report stated. “Clearly loan servicers are not helping enough troubled borrowers through voluntary loan modification efforts and, as a result, prospects for an improved housing market remain distant.”

Neighborhoods devastated

Foreclosures devastate entire neighborhoods because when a home is foreclosed its value drops, affecting nearby properties.

CRL estimates that there will be 2.4 million foreclosure starts in 2009, costing 69.5 million neighboring families $502 billion in lost property value. Nine million foreclosures are expected within the next four years which will cost 92 million neighboring families about $1.9 trillion in lost property values, according to CRL.

Glenn Russell, a Massachusetts attorney, said homeowners who have fallen behind in their payments have several options besides foreclosure including a short sale, bankruptcy or modifying their loans under the Home Affordable Modification Program (HAMP), which is free.

“But even if you get to lower that mortgage payment you need to ask yourself if you can afford that monthly payment,” Russell said. “Maybe it's not worth it.”

After the housing market collapsed, thousands of loan modification and foreclosure rescue companies surfaced nationwide, all promising homeowners to reduce mortgage payments -- many of them run by the same people who had brokered the disastrous "creative" mortgages.

Since April, the Federal Trade Commission and state agencies have sued dozens of mortgage foreclosure rescue and loan modification companies.

In Florida, thousands of homeowners have filed complaints with state agencies and Florida Attorney General Bill McCollum has sued 14 loan modification and foreclosure rescue companies on allegations that the companies failed to perform the services or for charging upfront fees, which is against state law.

Recently, California Attorney General Edmund G. Brown Jr. threatened civil and criminal action against 386 foreclosure rescue companies operating in the state.

And Texas Attorney General Greg Abbott has taken legal action against several foreclosure rescue companies.

Lauri Saathoss, a spokeswoman with the Texas attorney general’s office, said the office has received several complaints against Litton, but she refused to acknowledge any investigation.

“We’re mediating the complaints and monitoring Litton’s actions to resolve them,” Saathoss said.

The dream has died

For now, the American dream is gone for these families and their credit is destroyed, which has made it difficult for them to find places to rent.

But looking back, homeowners said, they did everything they could to save their homes. And they hope the sleepless nights and stress will become part of the past as they start over again.

“I’m going to move out this weekend,” said McCloskey Aug. 25. “You never know if they [Litton] will kick me out after the auction. I want to get on with my life.”

McCloskey said she has a short-sale offer on the table to buy the property for $264,000, but Litton has yet to respond to the offer.

James said: “I’m moving in the next couple of weeks. We have to move forward.”

Cheverez found a place to rent, but she’s still angry and hurt.

“I’ve worked all my life, ” Cheverez said. “But this experience has opened my eyes on how little the average American really counts, including regular people and those like me who work for a paycheck.”

More about foreclosure ...

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Mc Nelly Torres is a former investigative reporter for the South Florida Sun-Sentinel. She is a member of the board of directors of the Investigative Reporters & Editors organization.

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