A KeyBank Foreclosure Draws Fire

ALERT: There is a DECEMBER 2 Congressional HEARING ON FORECLOSURE ABUSE before national lawmakers where Attorney Cox says that he plans to showcase Ms. Vaughan’s case. Surely we have equally compelling illustrative cases that also cry for national attention.

Allan O’Brien Denchfield
  • November 24, 2010, 2:14 PM ET

A KeyBank Foreclosure Draws Fire

By Robbie Whelan

Maine Listings
Ms. Vaughan no longer lives at the house on Auburn Road. It’s listed for $44,900.
Are banks treating foreclosures with an “assembly line mentality”? If so, should they be?
On Monday, a number of economic and financial blogs published an interesting account of a foreclosure, titled “Two Cords of Wood,” written by Maine pro bono attorney Thomas A. Cox.
Mr. Cox, profiled last month by the NY Times, deposed GMAC “robo-signer” Jeffrey Stephan this past summer, a key moment in the current foreclosure morass: After a judge reprimanded GMAC and the bank tried to have Mr. Cox sanctioned, a memo about GMAC suspending foreclosures leaked to Bloomberg News, and the whole thing snowballed into an issue of national import.
Fast-forward to October, when one of Mr. Cox’s clients, Nancy Vaughan of Peru, Maine, was evicted from her home after defaulting on a $28,000 second mortgage from Cleveland-based KeyBank. She had asked Mr. Cox whether she should bother buying two cords of wood to heat her home for the winter, given that the bank was poised to foreclose, hence the title of the essay. (Download and read Cox’s essay.)
In Mr. Cox’s account, Ms. Vaughan, who was current on her $50,000 first mortgage, had lost her job at a paper mill, but found a new job that paid less, and was seeking to restructure her second loan to make lower monthly payments. KeyBank declined the offer, and instead foreclosed on the home, bought out the first mortgage holder and listed the property for sale. (It’s offered for $44,900 at MaineListings.com.) Ms. Vaughan never bought those two cords of wood. But the deal didn’t pencil out very well for KeyBank. Mr. Cox writes:
Since the interest in this home that KeyBank purchased was still subject to the outstanding first mortgage, KeyBank then paid $50,000 to the first mortgage holder so that it could own full title to the property as it made plans to re-sell it. Thus, at this point, Keybank had over $54,000 invested in gaining full title to this property. Last week, KeyBank listed this property for sale for $44,000. If it can sell it at all, it will surely net no more than $40,000.  This will leave KeyBank with a real cash loss of over $14,000, it leaves a woman living in her daughter’s basement who was willing to pay at least some level on her second mortgage, it leaves the community with an empty and devalued property in its midst, and it leaves a very sour taste in all of us who try to help these people.
Mr. Cox said in an interview with Developments that the bank’s actions highlight the industry’s “assembly-line” mindset, in which disposing of delinquent loans expediently and not wasting time or manpower on individual cases is far more important than the borrower’s interests, or, in this case, even realizing a profit on the loan at all.
“I was stunned when they came in ponied up $50,000 to buy out the first mortgage holder. I have no explanation for why they acted so foolishly, other than that this is their system,” Mr. Cox said. Part of the problem, he added, is that KeyBank, which has roots in Maine going back to the mid-1800s, through its acquisition of Canal National Bank, an old Maine institution, in the 1980s, has little to no presence in Maine, on the consumer lending side of things. Everything is run out of the bank’s Ohio offices.
“There’s no presence left to deal with people who have run into problems,” said Mr. Cox, who in the 1980s represented KeyBank as an attorney. “In the past, you could walk into your bank, the local branch, and talk to someone about your loan, or at least pick up a phone and talk to somebody.”
KeyBank earlier this year valued the house at $110,000, a number which Mr. Cox says is outrageously high, and in an email sent this morning, a KeyBank spokeswoman told Mr. Cox that “that there are no further actions that will be taken” on the house.
A spokeswoman for KeyBank said the lender does not discuss individual cases, but added that prior to filing foreclosure proceedings, Key engaged in good faith, protracted restructure negotiations with the borrower for more than two years, which were unsuccessful.
Now, Mr. Cox says that he plans to showcase Ms. Vaughan’s case before national lawymakers at a December 2 congressional hearing on foreclosure abuse, and he has sent a letter to the lender asking them to sell the house back to Ms. Vaughan, with more “rational” loan terms. He wants the bank to sell the house to her for $40,000, with the purchase 100% financed by a 30-year, fixed rate mortgage at the current Freddie Mac rate of 4.25%. The arrangement would essentially restructure Ms. Vaughan’s loan, and wipe out her second, but, Mr. Cox reasons, it’s the same deal they would get if they sold the house at foreclosure auction, only with a borrower who wants to be there and is willing to keep up the house.
Readers, do you think this is a fair deal for Ms. Vaughan? How about for the bank? And if not, what would be a more equitable arrangement?

 

24 Responses

  1. to BOB:

    The elderly woman in Chicago could now go back into Court with a Motion to declare the mortgage null and void on equitable principles. The creditor has abused the debtor and the Court with its egregious trespass, and caused damages which it has ignored a Court order to fix. Why should the Court entertain further claims from a party that flouts the Court’s authority? No reason at all. So the mortgage (not the Note, necessarily, but the security instrument) gets scratched. (They own the Note, but they don’t get to collect on it until the property is ultimately sold by the owner’s own volition. Might be a long wait. )

  2. I think the math on the loss analysis for Key Bank is wrong. Key paid $50,000 on the First to gain ownership of the house, paid $4,000 in fees to foreclose, so is out of the money by 54K. BUT: Key also had $28,000 exposed out there on the second. Key now seeks to sell the property for $44,000, which in effect means that key is paying $10,000 for the privilege of walking away from the second of $28,000, for which it recovers zero. And it will pay some sales commissions presumably, so Key will pay some $14,000 for the privilege of receiving noting on its $28K second mortgage.

    Key Bank is not that stupid. Key is recovering through the credit-default insurance, however it is placed or structured. And if there is no PMI on the second (there might not be), then they are seriously stupid. Better to mark the Note on the 2nd “paid” and walk away.

  3. Donna I spologise t got off on the wrong tangent earlier …. I was fired up for you and realised after I’d got off my soap box you said 120 meeting. Still wish you the best.

  4. Deb wynn,

    Almost impossible to get ledgers in court. The AGs have to do their job.

  5. indio007,

    But the banks are not loaning out. And, no one really knows what is on their balance sheets. They cannot remove the securities/loans until the derivative contract holders – collect your home.

    This is why we keep hearing from bank cheerleaders that the foreclosures must go through – and that means – keep covering up!!!!.

  6. Why we need thecourt to order the production of thf master ledger anyone cate to comment anyone get the master ledger ( like you wrent gagged if you did lol)

  7. Sounds like a good deal to me! She went from $78,000 to $40,000 (which is probably the value of the home) The bank is now willing to sell it for $44,000, and if there were a realtor involved on either the seller or buyers end, the bank would have to pay out that commission, (probably a minimum of 5%) and they’d be taking that much less. I think with her getting her own house back that she wants, and them not having to pay a commission, it would even be fair to have them let her buy the house back for the $44,000. at that same mentioned rate for 30 yrs. and everyone’s happy. I wish that would happen in my case on a $455,000 mtg!

  8. Used car guy. Will do. Cheers

  9. DONNA. Fight girl
    read thus site much list your home as unsecured and contested debt as you are saying in your blog get hold of max Gardner see his blogs and sites. It’s hard but fight these royal bastards. God loves you Thus is not legal advice but screw it we must help each other. Also see if you can find an attorney if they might do pro Bono then look up your state statutes and look at your county recorders office site and find your deeds and scrutinize them. Read and read and read until you have a firm understanding perhaps motion the bk court for more time to get your scheduals right remember u secured and contested hsbc will say it’s secured and give a copy of the note m&i us allonges and nothing to back it uP will be recorded
    Look at ucc article 3 commercial code go to Cornell law website for starters . Alternatively you Let them take the home and stay in your bankruptcy and start over. I’m fighting because it’s right for me in my particular set of circumstances my advice to you is ask yourself this…, will you be at peace with your decision years down the road… only you know ….Again I’m not an attorney and this therefor isn’t legal advice it’s just stuff I picked up during my struggle and it is a great struggle with the complexity. Just get informed and god bless you .
    stuff but the bk judges are starting to understand even here in az decision.

  10. Deb, I found the credit default swaps for the Wells Fargo Home Equity Trust 05-2 (my trust) in the Maiden Lane 1 (TARP) bailout. google Maiden Lane, and you find three seperate deals that list bonds and default swaps. Take a look, you might find them there.

  11. Used car guy. Iscthere any way to find out about the credit default swaps and if payed out ( other than a court order)

  12. Bob, I belive the “lockdown’s” are to claim ownership of property they have no right’s to. It’s reverse squatting. It seem’s to be the only thing left in the arsenal. File a complaint with the local police and take the company to court, they all claim the “he did it” when they are put on the carpet.This is grand theft.

  13. I have an elderly, handicapped, African American woman who has lived in her home for over 30 years. The lender decided that she was in a flood plain, even though she wasn’t, and secured forced placed insurance on her property. Her payment schedule was like a roller coaster, which ultimately put her in foreclosure.

    She secured a great Legal Aid attorney here in Chicago and he successfully defeated the bank’s motion for summary judgment. Despite losing the motion, the bank sent an order out to “Winterize” her property. She was living a few blocks away at her daughter’s, recovering from surgery when they broke in. They cut through a security door and smashed through the front door, cut off her water and vandelized the house. In their report they stated that they believed that the property was vacant, despite there being food in the pantry and the refrigerator, furniture and other signs of life all over the house.

    She filed 2 emergency motions Pro Se, and secured orders for the bank to repair the damage. They ignored both orders. I filed a third emergency motion to compel and petition for rule to show cause. The Judge issued a third order to repair the premises. They still have not complied. At this point, they have done nothing for the past 6 weeks. Thanksgiving has come and gone, and the home where she hosted Holiday parties for the past 30 years is a mess.

  14. Why are people so clueless about what the banks are doing? They are trying to remain solvent. A house counts as tier one capital. 30-1 hypothecation means they can now loan out 1.2 million. 4% interest on 1.2 million easily covers the 14k loss. It’s better than being in limbo on a debt they can’t collect.

  15. To Pat Balon, Your idea sounds a bit “sharky”. We need real solutions not idea’s that put someone out on the street.I think this has already been used on alot of consumers.

  16. Give the lady her house back already. They screwed up. How about a “VOID” mortgage?

  17. Elizabeth, my servicing records show that the servicer started filing claims to insurer after the 2nd missed payment. Even thought the loan was brought current before the third missed payment, the servicer continued to report the loan in default and collect OUR payments and that of the insurer for a year and a half. MI claims are tendered 45 days after the first payment default. The only reason I know this is because I obtained servicing records in discovery. At least, that’s how it worked in my case.

  18. Neva,

    No, the banks are not that ‘stupid’. They MADE money on this already, just not in any part of the transaction that we are normally privvy to.

    This just shows the investigation(s) that are needed to show how crooked the mortgage servicing industry and the banksters that also operate as servicers really ARE.

  19. The bank will clear much more than 40K on the property. Reason, they will file for an insurance payout to offset their losses. Also, they will probably get the next loan, fees, charges by the new buyer! It is a win, win for the banks! Yet, we are still held to Morality and making our payments! The banks do not need to have morality as is a testament to this story! They are purely in it for a business decision and not one ethical and moral value exists!

  20. I suspect these lenders want to wash their crooked dealings through the foreclosure.

    If they do the workouts they were paid by the taxpayers to do, they couldn’t wash away the forged documents they have to use now. And right now they have those pesky homeowners and their attorneys reading all that stuff.

    After they foreclose, they then can fabricate all new legal documents to replace the largely forged documents they have now.

    A better position for them, and less jail time for forgery. Do I seem cynical?

  21. In what case or scenario the servicer will be collecting on the default insurance? When borrower just defaults or when the servicer files a foreclosure?
    Does any modification on defaulted loan makes the servicer eligible to apply for the compensation from the default insurance?

    Do you know of any cases or guidelines?

    Thank you,
    Elizabeth, Florida

  22. This is precisely the problem in the present mess. Not only the lenders created the mess but also have a irrational solution which is foreclosure and then resell at a substantial loss as in this case.

    The solution proposed by Cox is precisely what is needed. And since the lenders do not have common sense they should be compelled to do it or no foreclosure should be allowed.

    If I had the funds this is what I would do. I would do a lease option and allow the current owner to live in the house at a lower lease rate and then allow them to buy it when they are ready and back on their feet.

    To take Mr. Cox’s example since the back is run by idiots I would buy the property at say $35,000 rent it to the lady at what she can afford (say $500 a month) and let her buy it at let us say $45k when she is ready. Everybody benefits.

    Unfortunately I have this idea but no funds to it. So if their are investors out there interested let me know.

    I can be reached at Pattu_99@yahoo.com
    Pat Balan

  23. The article unfortunately doesn’t touch upon the loan servicer’s default insurance. Perhaps it really was wildy more profitable for the bank – both 1st and 2nd banks, perhaps – and other undisclosed parties to foreclose than to do anything else? The accounting as framed by Mr. Cox is only what he heard from the servicer, which we all know, is not a reliable source.

  24. It is the dumbest thing I have ever seen. If a bank is a business, how does this seem viable in any way. Who was or were the actual person or persons who came up with this? They should be fired for being terminally dumb. However, I have seen this before when I tried to do a short sale for a friend. The bank would not cooperate in any way. What are they hiding? What crime sits at the bottom of this that they are trying to hide? I think it is a good example of the downright foolishness of the banks. You are right. They are lots more cases out there of utter incompetence, venality and stupidity by the banks. Throwing the home owner out of his home when they can pay on a modified loan is ridiculous. I would like to see the bankruptcy code changed the way it was supposed to be so that the bankruptcy court can make the banks modify the loan into something reasonable. http://www.challengingforeclosure.com Sirak@challengingforeclosure.com

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