“System is Broken” — there is no clear title and no clear answers, which is why most foreclosure actions should fail or be reversed

Mortgage market clouds who owns woman’s house

Submitted by Jose Semedey — Thank You


The Atlanta Journal-Constitution

Sunday, January 25, 2009

Twenty years ago, Zella Mae Green bought a modest brick ranch house in DeKalb County with an American ideal in mind. The single mother of four, who raised her children working low-wage jobs, wanted to own something someday. And she wanted to pass something on.

“I was thinking that if anything would ever happen to me, the children would have a place they could come and stay,” said Green, a seamstress who is 68. “Their father passed away when they were young.”

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LOUIE FAVORITE / lfavorite@ajc.com
Zella Mae Green has been in a stalemate with mortgage lenders for years trying to learn who holds the note on her Decatur home and how much she really owes.
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Green says she has done her part, making payments on the house she bought for $40,000 to the series of lenders who have managed her mortgage over two decades.

But Citigroup and Wells Fargo say Green has failed miserably as a homeowner and is nine years behind on her payments. And they want to take the house.

“Nine years? There ain’t no way,” Green said. “Ain’t no way you can stay someplace for nine years without paying anything.”

Determining whether a homeowner is truly years behind on a mortgage seems like a straightforward question.

But Green and a string of lenders have been arguing about the matter in court for years now — with no resolution in sight. Her lawyer says the lenders have not even proven who owns the mortgage, let alone established how much Green owes.

Citigroup and Wells Fargo and the lawyers representing them declined to be interviewed for this article, citing pending litigation.

Green’s case illustrates the complexities of the modern mortgage market and just how difficult it can be to unwind the history of a mortgage. Most mortgages are originated by one lender, then sold — often repeatedly — to other lenders or groups of investors. Other companies are often brought in to process payments and manage escrow accounts.

For the thousands of homeowners who are behind on mortgage payments or in a dispute about how much is owed, getting accurate information about a loan can be difficult. Negotiating a resolution — especially when a series of lenders and managers has been involved — can be even harder.

“Here is a homeowner who wants to get her mortgage worked out so she can pay it,” said Howard Rothbloom, Green’s attorney. “She can’t get it done.”

Question of ownership

Green picked out her house 20 years ago. It’s a two-bedroom, one-bath brick ranch with about 1,000 square feet. Green borrowed $40,250 from All Georgia Mortgage at an interest rate of 10 percent in 1988. She felt sure she could handle the $353 payments with her job at J.C. Penney.

“I was excited about it because I knew one day it would be mine,” said Green, now a great-grandmother.

The home’s interior today is a reflection of Green. It’s adorned with fancy curtains and pillows she made — the kind she creates in her seamstress job for an upscale decorating company. And it’s the place her family gathers to enjoy Green’s home cooking.

Trouble with the mortgage began years ago, she said, when she mailed in money orders that she says were applied to the wrong account — something she believes went on for at least seven months.

The mortgage companies involved with the loan at that time have since sold it.

Green said she sought help from several housing agencies and attorneys over the years, trying to get credit for all the payments she has made. “They told me it’s the biggest mess they have ever seen,” she said.

All Georgia Mortgage Co. originated Green’s loan, but it has been owned or managed by at least seven parties over the years. Citigroup now says it owns the loan and Wells Fargo is managing the payments.

Green acknowledged paying her mortgage late sometimes over the years, but she said she always made up for it. She has filed for bankruptcy four times since 1989 — usually when a lender threatened foreclosure.

Lenders in Georgia can proceed with a foreclosure without the involvement of any court. Bankruptcy automatically stops a foreclosure, and the court generally serves as the forum for resolving mortgage disputes.

Green said the bankruptcies were the only way to try to figure out what happened to her payments and to keep her house.

Complicated accounts

Green’s case sounds extreme. But lawyers who represent homeowners say most mortgage lenders rely on such complicated accounting systems that experts have to be hired to even read the history of payments and charges.

“The payment histories are designed by these servicing companies to be gobbledygook,” said William J. Brennan Jr., an attorney at Atlanta Legal Aid and national expert on mortgage lending. “Knowing what somebody owes is crucial. They will give you a number, but if you want to see if that’s right — good luck.”

A payment history provided by lenders in Green’s case is complicated. It shows numerous credits on the same day for relatively small amounts, listed as “payment rec’d,” but shows no change in the account’s balance.

The history also appears to show her account being within months of being current, then suddenly more than seven years behind and then current again in 2000.

Green filed for bankruptcy protection for a fourth time in 2004 with the help of Rothbloom, an attorney with a successful record of challenging mortgage lenders.

“I’m just trying to find out two things: What Ms. Green’s proper loan balance is and who she owes it to,” Rothbloom said.

So far, who owns the mortgage has not been resolved.

A lender proves ownership of a mortgage by producing the “promissory note,” the document signed at closing in which the borrower agrees to the debt. The note is valuable and can be bought and sold by lenders. But like a personal check, it is only valuable in its original form.

Green’s lenders have admitted in court documents they can’t find her note. Legal experts say that’s a big deal.

“There is no excuse for the inability of mortgage lenders to know where the note is,” said Frank Alexander, an Emory University law professor and a leading expert on real estate law. “Without the note, you have virtually nothing. That is the one thing that is always locked in a vault.”

The lender says everybody knows that Citigroup owns the note. If Green thought otherwise, they say in court documents, why would she send Citigroup her payments?

Rothbloom says that’s not good enough. “Their answer is, ‘We have a copy,’” Rothbloom said. “My answer is, ‘I have a copy, too.’ “

Katherine Porter, a University of Iowa law professor, found in a study that lenders routinely fail to file required documents in bankruptcy cases to prove what consumers owe. And their accounting systems, she said, make it hard for them to track the history of payments over the life of a loan, especially when numerous lenders are involved.

Porter said Green’s case illustrates how complicated these cases can become.

“If she can’t get this information through litigation and with a skilled attorney, what happens to people facing foreclosure who sent their check in and can’t get the lender to admit it?” Porter said.

‘System is broken’

In legal filings, the lenders say Green has never been able to keep up with the payments. They cite her numerous bankruptcies and the fact that Green participated in a federal program designed to help struggling homeowners between 1997 and 2000.

Rothbloom said payment records appear to show her loan was current in 2000, when under the management of the U.S. Department of Housing and Urban Development. He said it’s possible HUD’s program transferred past-due payments to the end of the loan to allow Green to stay in the house.

“Anything is a possibility,” Rothbloom said. “That’s why we sued. To find out what’s going on.”

What Rothbloom knows, he said, is that Green has made every payment since 2004. Still, he has made no progress getting lenders to agree to a settlement in a case involving a house that DeKalb County values at $67,000.

“Why do they want this house?” Rothbloom said. “The answer is the system is broken.”

11 Responses

  1. Here is a link to a cute comic strip explaining the securitization process:


  2. I can tell you from personnal experience that the system is most certainly broken. W just lost our home in forclosure 6 months ago. It all started when the “servicing company’ decided not to pay my homeowners insurance out of our escrow account and never notified-it was cancelled it cost me twice the amonut for insurance and i had to re-roof my home and do exterior work to satisify the new insurer and it had to be done in 3 weeks time-it cost 8500.00. we fell a month behind on the mortgage. I called every day to make arranagements even though it was their fault, of course they took zero responsiblity. i talked to a different person every day and had to keep starting the process over and over-they mis applied a payment and that just lead to a mess-I fought them for 3 years. We started out owing 140,000 and in the end not including my lawyers fees-we owed the lender 227,000. we gave up and signed a deed in lieu of forecloser-they are currently marketing our home for 105,000. We had re-finance offer set to close 4 different times and each time they were offered a slightly less amount than we owed-the last offer was for 170,000. they wouln’t take it-they wante dthe win-our house and wht did they get they lost 122,000. that is why our country is in such a mess-banks are not trying to help they could care less and because of that they are losing money and now want they want to be saved using americans hard earned tax money-my tax money the person they burnt-I have the money to pay my mortgage-I found a bought a new home even though they ruined my credit-but our goverment needs to stop giving them money and review what they are doing alot of this could be fixed if companies simply worked with homeowners instead of going for the win the kill.

  3. Thank you for the detailed explanation.

  4. […] January 29th, 2009 Goto comments Leave a comment Advertise Here Here is a new post at “System is Broken” — there is no clear title and no clear answers …. For the thousands of homeowners who are behind on mortgage payments or in a dispute about how much […]

  5. Well the point Cindy, is the “pretender lenders” aka mortgage brokers or agents of a bank, who really were not BANKS “gave” loans to people that they knew or should have known could NOT pay them back simply because they had no “skin in the game” like in days gone by where the BANK actually put up THEIR MONEY and cared whether or not people could afford the mortgage they were getting…the originator, the broker, the mortgage wholesaler, the actual bank who sold the mortgage to a “Special Purpose Entity(SPE)” who then securitized the cash flows from the mortgage to investors…..none of them cared whether the borrower could repay the loan they got paid as “middlemen” that is where the GREED came in…..many of these borrowers were first time home buyers pursuing the American dream operating under the belief that the “BANK” would not loan them the money if A) the collateral/property was properly appraised/valued and B) the “BANK” didn’t think they could pay back the loan…these parties did not care, it was not their money being lent, it belonged to the investors…..AND if the Investor who was putting up the money KNEW that he was buying into a pool of fraudulently made loans that were not rated AAA by S&P, Moody’s and the other ratings agencies they investor would never have put up the money in the first place….the Borrower was defrauded and the Investor was defrauded….everyone else was a middleman grifting their piece of the action …it really is that simple.

  6. The buying frenzy drove up house prices. People were willing to pay these unrealistic prices! They overbought a house they could not afford in the first place. My husband and I built our first home after renting 10 years. Our cost to build was $100K. Most people around us were building over $200K houses. We looked at each other and shook out heads wondering where do these people work? The banks gave out loans to people who could barely afford the mortgage on an interest only loan. Now we are all paying the price for GREED!

  7. “The question should be who did not act this way. ”

    Jose, speculative excess is a regular fixture in human existence that can be traced back to early Rome, 2500 years ago. We humans are drawn to it, like a moth to light at night.
    Don’t know how old you are, but you will see it happen again. Sure there will be a time of finger pointing and blame, but soon all will be forgotten. You can only hope to learn a lesson and move on. For me it was a stock of a internet company called FINET. Chased it all the way down in 2000. Lost $10K on that one! But, I learned and grew as an investor. Many professional investors chased ENRON all the way down, which spawned lots of lawsuits.
    People will speculate, some will win, most will lose and the losers will find a way to blame someone or something else. Its an old story!

  8. Fed Adopts Program To Stem Foreclosures
    Mortgage Renegotiation to Focus On Reducing Amount of Principal Owed

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    By Neil Irwin and Renae Merle
    Washington Post Staff Writers
    Wednesday, January 28, 2009; Page D01

    With its bailouts of Bear Stearns and American International Group, the Federal Reserve took a vast portfolio of mortgages onto its books. Now, it is trying to use its control of billions of dollars worth of home loans to help prevent foreclosures.

    The Fed will seek to renegotiate mortgages it owns that might otherwise enter foreclosure, Chairman Ben S. Bernanke told congressional leaders in a letter yesterday. The decision won praise from congressional Democrats, who took it as a sign that the central bank’s leaders are cooperating with efforts to use government power to try to stem the number of foreclosures.

    It is unclear how many homeowners stand to benefit. Under the program, the Fed can reduce what a homeowner owes on a mortgage, lower the interest rate, lengthen the term of a loan or take other steps to keep a loan from defaulting, if doing so would offer taxpayers a better long-term payoff than foreclosure. Individual borrowers are unlikely to know whether their mortgages are owned by the Fed, but if they qualify for a renegotiation, they would deal only with their mortgage servicer.

    The Fed is emphasizing reducing the amount of principal owed by people at risk of foreclosure, particularly those with a loan balance that is more than 125 percent of the estimated value of their property. Private lenders have been reluctant to renegotiate loans that way, as some of the institutions that own those loans, in the form of mortgage-backed securities, stand to lose money and therefore object.

    Bernanke has previously advocated principal reductions, saying in a speech in March that they could be an “effective means of avoiding delinquency and foreclosure.”

    If the Fed strategy works and reduces the number of foreclosures while helping the owner of the loans — the central bank in this case — it could serve as a model for other owners of mortgage loans. For example, the Federal Deposit Insurance Corp. has tried to use its control of California bank IndyMac, which it seized last summer, to do loan modifications, but has been frustrated by investors in those loans being unwilling to reduce the amount of principal owed.

    “It’s a step beyond what FDIC is doing with its own portfolio,” said Alan White, an assistant professor at Valparaiso University School of Law, who has been studying the foreclosure crisis. “Principal write-downs are still the critical issue” in keeping borrowers in their homes.

    It is impossible, based on public information, to know the exact dollar value of the mortgages the Fed holds — though it is in the tens of billions of dollars. In the near term, the mortgages affected are those held in special limited liability corporations that the central bank created to hold assets after its March rescue of investment bank Bear Stearns and September takeover of insurance company AIG.

    The Bear Stearns portfolio is worth $27 billion, of which some portion — exactly how much the Fed will not disclose — consists of residential mortgages. The AIG assets include a $20 billion portfolio of mortgage-backed securities and a $27 billion portfolio that includes complex securities that are partly backed by mortgage debt.

    Congressional leaders yesterday praised the Fed’s action, while urging further steps. “This is an important advance, and I hope to work with the [Fed] to strengthen the program,” said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee. Dodd also urged the Fed “to work with consumer advocates to develop the most effective program possible.”

  9. Just go to implodeometer, link provided in this blog and see the 324 lenders that have imploded, wondering how many lenders acted this way is a very narrow view of things considering that in the last three years 7 milliom families have lost their homes. The question should be who did not act this way.

    Big banks, small banks, large mortgage brokers, small mortgage brokers, they all got into the game, the consumer got into the game, the title insurance companies got into the game, the government got into the game.

    The was so much money flowing through the system and unrealistic low interest rates and easy credit, with no accountability that we all set us up for failure.

    The securitization process made it easy to cheat and made it difficult to apply good compliance principles. Even today the lenders are paying good money for compliance systems that do not work and that lack the flexibility needed to assure investors that all loans were proper. The investors did not care since their investments were insured. The loan officers and broker did not care since their money was not at risk.

    The borrowers who had the least amount of information were living under the spell of a false sense of prosperity (CREDIT BACKED PROSPERITY)

  10. Yes, this is a troubling issue with some lenders being less than honest with folks about what their taxes will become. But how many lenders acted this way? This was particularly problematic here in Florida as folks initially paid at the tax rate of the previous owner, then after Jan 1 had to pay their rate which because of homestead exemptions could easily be 2 or 3 times as much!

  11. I worked for a mortgage company in Arlington,TX. They split and sold their residential loans to another mortgage company.
    This company failed and sold to Bank of New
    England. Documents were kept in Massachusetts. The servicing was in Texas. I was a loan payoff clerk. The whole process was totally inept. We were told that we should not tell the borrower who the investors or owners of the loans were. I am sure there are still people wondering where their releases of lien are. I remember in the early 1980’s when there was a
    recession and the Adjustable Rate Mortgage was
    invented. At that time there were people who in
    order to sell their homes used a method called a
    wrap around mortgage. The ARM loans were
    under scrutiny for unethical lending practices
    back then. One practice that happened back then and still happens today has to do with the
    loan qualification process on new homes.
    Invariably, these properties are qualified with tax rates based upon unimproved property. The explaination or argument was that they had
    no way of knowing what the taxes would be until the property has be reassessed based upon the
    improved basis of the property. This sets the
    borrower up for financial failure. They do not
    expect to get higher payments almost immediately that they are not prepared for and
    do not expect. I worked as an escrow analysis
    clerk and customer service representative. It was my duty to explain the complicated process of how their analysis’s were determined. Unfortunately, this practice continues today with no conscience on the part of the lenders. To them it just goes with the territory. These people are not made aware that they being set
    up for failure. They borrow in good faith that
    they can afford the loan only to be informed in
    the next year or two that their payment has
    skyrocketed and its their fault for not being
    educated about the mortgage loan borrowing process. I am wondering when this will be brought to light and the mortgage companies will be held accountable for their actions.

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