Lawsuits Against Pretender Lenders Skyrocket

In the last five years, the number of foreclosure lawsuits filed in federal court in California has ballooned — like an exploding adjustable-rate mortgage — from only 29 statewide in 2005 to nearly 1,400 last year.

Increasing numbers of Californians are suing lenders to avoid foreclosures

By Tracey Kaplan and Maria J. Ávila López,

Two weeks before their Sunnyvale home was to be auctioned off on the courthouse steps, Sonia Leverman and her sons seized on a desperate David-vs.-Goliath strategy: They sued their lender.

Everything else the Levermans tried had already failed. By turning to the courts, they joined a fast-growing number of fearful and frustrated California home- owners who hope litigation will allow them to hold onto the American dream — maybe at a lower monthly mortgage cost, maybe just for a while longer until the inevitable foreclosure.

In the last five years, the number of foreclosure lawsuits filed in federal court in California has ballooned — like an exploding adjustable-rate mortgage — from only 29 statewide in 2005 to nearly 1,400 last year.

Many such lawsuits also are filed in state courts, which don’t track the numbers or the outcomes.

The striking increase in suits against lenders reflects the difficulty many with underwater mortgages are having in getting loan modifications, either through the government program or the banks themselves.

But some experts say the lawsuits don’t work as well as they did 18 months ago, and never were an easy bet in California.

Even if a lawsuit doesn’t ultimately succeed, it can sometimes significantly delay the loss of a home. Some suits contend the lender reneged on a promise of a loan modification, as in the Levermans’ case. Others argue lenders screwed up the foreclosure process. Among the most frequent claims: During the overheated housing boom, the bank did not properly disclose the terms of the loan, the borrower never really qualified, but got a loan anyhow.

If there are grounds for a lawsuit, “it definitely buys time,” said Hayward attorney Glen L. Moss.

Yet judges are quicker to dismiss cases as they get more familiar with the complex laws, banks are more reluctant to settle them, and the federal court here is the only one in the nation that requires some homeowners to put up a portion of what they borrowed before certain lawsuits can be heard.

Attorneys familiar with the 4-inch-thick set of federal rules on lending also warn that fragile homeowners are easy prey for unscrupulous or ill-informed lawyers. California enacted an emergency law in October preventing attorneys from taking advance fees for loan modifications, but the State Bar is investigating more than 500 lawyers for loan modification fraud.

Some California Democratic legislators are trying to get a law passed that probably would reduce the number of lawsuits by requiring mediation between borrowers and lenders before a foreclosure can proceed.

California has the nation’s fourth-highest foreclosure rate after Florida, Nevada and Arizona. Several other states have passed similar programs, including Nevada. But the bill faces strong opposition from mortgage bankers.

Legal battles

On a street of bland ranch houses just west of Highway 101, the Levermans’ three-bedroom, $655,000 home stands out with its jaunty orange and terra cotta paint job and immaculate yard studded with animal figurines.

“For me, it’s my palace even though it’s old,” said Leverman, who speaks little English.

To make the initial monthly payments of about $2,500, her husband and sons worked long hours as cooks. But in 2008, her husband lost his job and her sons’ hours were cut back, just as the variable-rate mortgage payment shot up to $4,353.

The increase shocked Leverman, who’d signed the English-only documents without understanding the terms. The family then wasted $6,500 on three loan modification “experts” who didn’t accomplish anything.

The last straw was when Litton Loan Servicing refused to grant them a permanent loan modification, claiming their third trial payment was late — even though they had a Western Union receipt showing it arrived on time. An attorney for Litton did not respond to requests for comment.

The Levermans’ frustrating experience is not unique, though banks insist they have modified thousands of loans. The latest data on Obama’s loan modification program does show improvement. But Alan M. White, a professor at Valparaiso University School of Law, who specializes in foreclosures, said tough enforcement action is needed to spur more modifications.

The Levermans finally hired Los Gatos lawyer Wendell J. Jones, who filed suit in state court against Litton, alleging breach of contract. As a result, the family is back on track for a permanent modification, though they still will owe more than the house is now worth. If everything works out, Jones’ services will cost $5,000. “Only when I got involved and filed a lawsuit did the lender come to the table,” Jones said.

But even Jones warns the Levermans’ success may be the exception, not the rule. Many homeowners who’ve filed suit remain in limbo.

Move delayed

To Aaron Liebelt, one of Moss’ clients, that’s enough for now. Liebelt, 36, and his girlfriend, Jessica Taylor, bought their four-bedroom house with a swimming pool in West San Jose in 2006 for $815,000. They made interest-only payments of $3,500 for two years, and were hoping to refinance, until he lost his job at a music store and his recording studio foundered.

Liebelt, who now works from 3 a.m. to 1 p.m. delivering bread, was about to be evicted when he hired Moss. The lender claimed he had defaulted on a repayment plan they negotiated, which the suit claims is not true. Now, the couple and Taylor’s teenage children get to stay in the same house and school district until the matter is litigated — which Moss says could take anywhere from six months to two years. The couple is paying Moss about $3,000 a month.

“What is the worst that could happen — I’ll lose the house?” Liebelt said. “I’m already in that position.”

5 Responses

  1. California just wants people to pay their property taxes because their budget is a disaster. Problem is that many “new buyers” are just speculators – thirty percent of new home sales is by speculators for full cash payment. This will not resolve the mortgage/home crisis. Time for California to crack down on what is going on. Much of the mortgage fraud was initiated by California domiciled “mortgage lenders.” California should be on the front line to fix the fraud for the rest of the country. Where are you Mr. Governor??.

  2. California maintains the least amount of public protection because it has such a high population & even higher economy. The way that the legal profession only protects thier own especially at the bar level, even worse with the courts. if you are pro se and not a licensed attorney or have a title of nobility then the way the judges see it you have no rights because they don’t view you as equals. the only people appointed to be a judge in ca is attorneys, practically the only type of trial that ever takes place in civil court is a bench not a jury and that’s even if your lucky to get to that stage which judges and attoreys on both sides do thier best to make sure doesn’t happen. lawyers/judges have highjacked justice and are holding it for indefinite ransom. kind of like they own all the property and pieces on the monopoly board the bank loans you money at interest only and gets $180 every time you pass go, there is no community chest only places you have to pay when you land on them.. but they will never let you leave the game.. it is slavery. the only solution remove everyone from office judicial, executive and legislative. then start from the ground up with complete public participation as a whole and bind the would be electors by contract to the public. no more desperate elections/re-elections. aren’t we all tired of settling for hope in a system we have close to zero power and influence over? I know I am

  3. Does anyone know what happens you’ve had your loan notarized by a notary, without you being present for them to do so? Because that’s what happened with my loan, not to mention, they never sent me the 1003 form for my signature, it’s signed by the loan originator, but not me, they also inflated my income by $3000, and stated clearly on the document that i had $27,500 in a bank account, when i’ve never had more than $3000 in my bank accounts, ever, and i can prove that, since i’ve had the same bank account since i was 7 years old.

    Any help on this, does this make my loan, still unfinished, i got the loan in August of 2005, can i still rescind the loan? I also got a second mortgage, two months after the first, which used my first, illegal?, loan to make it’s loan, by using their inflated appraisal, and never doing their own, that is also against the law. I found a local community action committee, that has some pull in some high places, and they are already looking into things, they even have direct access to the courts and can see the documents online, anytime.

    Anyone with ideas on this, little help, maybe my info helps you, i hope it does.

    Oh, and my loan was made by a broker, who made it out for American Wholesale Lenders, a subidiary of CountryWide, now serviced by none other than BoA, lucky me. 🙁

  4. Courts have the backing of a Congress and Administration that fails to enforce anything. This post clearly demonstrates that Mr. Garfield’s workshops are essential – but also people must speak out to their Congressional/Senate representatives (M. Turner’s suggestion is good). Had Congress and this Administration stood up to the banks from the onset – days in court would be far easier. California’s budget is in disaster. They want “non-payors” disposed of. Problem is that many buyer’s of foreclosed properties are “flipping them” – another bubble in waiting.

  5. I agree it is horrible in California.
    Onewest Bank FSB is the worst.



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