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October 27, 2010

Homeowners Facing Foreclosure

Demand Recourse
By ANDREW MARTIN and MOTOKO RICH
Ricky Rought paid cash to the Deutsche Bank National Trust Company for a four-room cabin
in Michigan with the intention of fixing it up for his daughter. Instead, the bank tried to
foreclose on the property and the locks were changed, court records show.

Sonya Robison is facing a foreclosure suit in Colorado after the company handling her
mortgage encouraged her to skip a payment, she says, to square up for mistakenly changing
the locks on her home, too.

Thomas and Charlotte Sexton, of Kentucky, were successfully foreclosed upon by a mortgage
trust that, according to court records, does not exist.

As lenders have reviewed tens of thousands of mortgages for errors in recent weeks, more and
more homeowners are stepping forward to say that they were victims of bank mistakes — and
in many cases, demanding legal recourse.

Some homeowners say the banks tried to foreclose on a house that did not even have a
mortgage. Others say they believed they were negotiating with the bank in good faith. Still
others say that even though they are delinquent on their mortgage payments, they deserve the
right to due process before being evicted.

Some consumer lawyers say they are now swamped with homeowners saying they have been
wronged by slipshod bank practices and want to fight to keep their homes. Joseph deMello, a
Massachusetts lawyer who represents Mr. Rought, said the common denominator in many of
the cases was an overwhelmed system of foreclosures in which banks relied on subcontractors
to do much of the work.

“No one double-checks anything,” he said. “It’s completely high volume and that’s
unfortunately what leads to this.”

It may never be known how many homeowners have legitimate claims against the banks, real

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estate and banking experts say, because lenders do not release such data and because the vast
majority of cases never make it to court.

For the last month or so, some of the nation’s largest banks have temporarily halted
foreclosures in some states amid accusations that the paperwork used as evidence to oust
homeowners was incomplete or signed off by so-called robo-signers who did little to check its
veracity.

Even if the paperwork was faulty, the fact remains that most homeowners in foreclosure have
not paid their bills, often because they bought more house than they could afford or because
they lost their jobs. As a result, they will most likely lose their homes eventually, once the
banks clean up their paperwork and resolve any outstanding legal issues.

“We believe that the overwhelming majority of the cases will be that the loan was seriously
delinquent and needed to go to foreclosure,” said Paul Leonard, vice president for government
affairs of the housing policy council at the Financial Services Roundtable, an advocacy group
for the nation’s largest financial institutions.

Consumer lawyers and housing experts acknowledge that it is relatively rare that a bank
initiates foreclosure on a homeowner who is current on the mortgage or has no mortgage at
all. More common, they say, are instances where homeowners have applied for mortgage
modifications but get foreclosed upon anyway.

In a report to Congress released this week, a federal inspector general described the
government-sponsored modification program, known as the Home Affordability Modification
Program, as deeply flawed.

While about 467,000 mortgages had received permanent modifications under the program, an
estimated 3.5 million homes will receive foreclosure notices this year, an increase of 26 percent
over 2009, the report says.

“You have this promise of relief for borrowers but actually getting that relief is like a zigzag
line from point A to point B,” said Jose Vasquez, a lawyer for Colorado Legal Services.

Ms. Robison’s case is a variation on the theme. When she returned home to Yoder, Colo.,
outside Colorado Springs, from a holiday trip in December 2008, she found the locks changed
and her electricity, gas and water heater shut off. A sign on the door advised her to contact
Safeguard Properties, a company hired by the mortgage servicer, Litton Loan Servicing.

The notice came as a shock to Ms. Robison, a single mother of three who is now 36. She had
renegotiated her mortgage just months before and was current on her payments. When she

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finally got back into her house, the food in the refrigerator was rotten and her lawn mower and
air compressor had been taken.

When she called Litton, an employee admitted that the company had made a mistake in
changing the locks, according to court documents. In order to reimburse her for her losses,
Ms. Robison said, the employee told her he would “work something out” regarding her
January mortgage payment, so she did not make it, court records show.

But when Ms. Robison paid her February and March mortgage payments, they were returned.
And in March, Deutsche Bank initiated foreclosure proceedings. “I’ve been wanting to pay
them the whole time, but they basically stopped taking my payments,” she said.

Deutsche has asserted its right to Ms. Robison’s house under a document that is meant to
assign ownership of a mortgage note, known as an allonge. But Ms. Robison’s lawyer, Stephen
Brunette, says Deutsche Bank is not named in the allonge that the bank submitted during
court proceedings and does not appear on any other documents relating to her home.

Both Deutsche Bank and Litton Loan Servicing declined to comment about the case. A
Deutsche Bank spokesman noted that the mortgage servicer, not the trustee, is usually
responsible for handling foreclosures.

In Michigan, Mr. Rought says that the bank went after the wrong person.

Mr. Rought bought the cabin from Deutsche Bank on Jan. 27, 2009, paying in cash. He spent
the next seven months fixing it up in anticipation that his daughter, Hannah, “would live in the
house and be away from her parents for the first time in her young life,” court records show.

But in August of that year, when the Roughts pulled into the driveway, they noticed that
something was wrong. The American flag was missing, the house had been broken into and the
locks had been changed.

The Roughts’ belongings were gone too, including an heirloom dining room table, pots and
pans, a pile of firewood — even the bracket used to hang the American flag. A contractor for
Deutsche Bank, Field Asset Services, left a sign tacked to the front door, so the Roughts
contacted them and said a mistake had been made.

A month later, however, Deutsche Bank’s representatives came to winterize the house, pouring
antifreeze in the sinks and toilets and disconnecting the water pump. “We had expected an
answer by now and quite frankly am appalled by the total lack of respect and professionalism
of your company,” Mr. Rought wrote in a Dec. 1, 2009, letter to Field Asset Services. “We are
trying to be patient and settle this peaceably. What would you do?”

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Eventually, Mr. Rought hired a lawyer. Deutsche Bank declined to comment, and Field Asset
Services did not return calls seeking comment.

Charlotte and Thomas Sexton, of Carlisle, Ky., fell behind on their mortgage payments because
the payments on their adjustable-rate mortgage spiked upwards and Ms. Sexton lost her job.

They tried unsuccessfully to sell the home, to refinance it and to modify their mortgage
payment. When the Bank of New York Mellon filed a foreclosure notice last summer, they went
to a local lawyer, Brian Canupp, who, with the help of a forensic accountant, found a problem
in the foreclosure filing.

Last month, a judge tossed out a foreclosure judgment after Mr. Canupp argued that the
mortgage trust that claimed to own the Sextons’ promissory note —Mortgage Pass-Through
Certificates Series 2002-HE2 — did not exist.

Instead, another trust, called IXIS Real Estate Capital Trust, Series 2005-HE2, claimed to own
the Sextons’ note, court records show.

Ms. Sexton said that regardless of who owns her promissory note, she just wants to stay in her
home and hopes that the bank will eventually agree to a loan modification.

“We found a mistake,” she said, “that gave us a light at the end of the tunnel.”

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