A local attorney is suing her lender for failing to give her a loan modification. Are loan modifications now an entitlement?
Irvine Home Address … 51 CEZANNE Irvine, CA 92603
Resale Home Price …… $1,849,000
Yeah owe me back like you owe your rent
Owe me back like its money I spent
Pay me back when you shake it again
Nas — You Owe Me
Are borrowers owed a loan modification? Is it a right or an entitlement? Once upon a time, loan modifications were a gift generously offered by a lender — a gift of a lower payment, a reduced interest rate or some other term modified in favor of borrowers as an enticement to keep paying their mortgage. Somewhere along the way, this unilateral change in terms in favor of buyers became something they are supposed to get, something they are entitled to. I am not sure why foolish borrowing should be rewarded this way, but fixing this problem after the fact is so important to the government that many programs exist to make these loan modifications happen, and now borrowers who have tried to use these programs are suing if the loan modification does occur to their satisfaction.
September 17th, 2010 — Marilyn Kalfus
An Irvine homeowner is suing a large national mortgage servicing company, saying they perpetrated a “loan modification hoax” and committed fraud by promising but never granting her a permanent home loan modification.
So this woman is claiming the entire loan modification program was a hoax to induce her to apply for something she probably isn't qualified for. That seems like a stretch to me, but if she can squeeze a few bucks out of the bank, why not?
Jean C. Wilcox, who also is a real estate lawyer, is seeking class-action status on behalf of other homeowners whose mortgages have been serviced by EMC Corporation.
EMC is based in Texas with offices in Irvine. The company used to be owned by Bear Stearns and is now a subsidiary of JP Morgan Chase, which is not named as a party in the suit. The lawsuit was filed by attorneys Anthony Lanza and Brodie H. Smith of Lanza & Goolsby in Irvine and Thomas Mauriello of Mauriello Law Firm in San Clemente.
Wilcox claims in the suit:
“Through its orchestrated loan modification hoax, EMC has induced consumers, including plaintiff, to continue making excess or other unjustified payments in pursuit of illusory permanent loan modifications. EMC has thereby avoided the need to initiate, prosecute and conclude multiple foreclosures … and has avoided the need to liquidate excessive and under-valued real estate inventory … and has artificially bolstered its financial statements, including balance sheets and related SEC filings … by minimizing mandatory reporting of toxic loans, defaulted loans or distressed loans.”
We’re requesting a response from EMC.
Wilcox bought her home in 2004. Three years later, she says in the suit, she refinanced her WAMU purchase money loan with a subprime loan from Freemont Investment and loan, which has since been dissolved. A few months after the refi, she was notified that EMC was her new servicer, but she wasn’t told who holds the loan. She said to this day, she doesn’t know who it is.
I found her mortgage records in my database. She purchased her home for $992,000 using a $695,000 first mortgage and a $297,000 down payment. She opened a $40,000 HELOC shortly thereafter, and she refinanced with an $800,000 loan on 12/29/2006. Perhaps she needed that extra $100,000 to pay for upgrades? It is the $800,000 loan with $100,000 cash out that she is seeking to modify. I'm thinking that if she wouldn't have pulled out that $100,000, she might not need a loan modification. Do we want to reward her behavior?
Wilcox says in the suit that she underwent 4 temporary or trial modifications with EMC but never received the permanent modification that she was promised. The goal posts kept changing, she said, as she was shuttled from person to person at the company.
In the suit she relays the various steps she took to fulfill the requirements she was told she needed to meet to obtain temporary loan mods. She says at one point an EMC employee advised her to stop making payments on her debts because it would prevent her loan from being modified. As she missed her payments, she said, her FICO score plunged. She said she postponed selling her house, while its value decreased significantly, because she was relying on receiving the permanent loan mod.
“I poured every penny I had into this house,” Wilcox, a single mother of two, said in a brief interview. ”We just lavished everything we could on this house. This is our ultimate dream home.”
And all of us are supposed to pay for that stupidity by subsidizing her mortgage. Great!
The lawsuit, filed in Orange County Superior Court, alleges violations of the California Consumers Legal Remedies Act, unlawful, unfair and deceptive business practices, breach of contract, unjust enrichment and fraud.
A judge would have to approve the suit’s class-action status. The law firm of Lanza & Goolsby states on its Website, ”It is estimated that the class may include hundreds or thousands of California homeowners who were victims of EMC’s fraud — while struggling to keep their homes through this recession.”
Investigative Website Pro Publica has delved into the denial of loan modifications in an extensive series of reports. Reporter Paul Kiel wrote in February:
“The largest servicers have lagged in approving homeowners for modifications. Together, those servicers account for more than 60 percent of the 3.4 million mortgages eligible for the program, but very few homeowners have been approved for lasting modifications. About 425,000 Chase customers are eligible for loan mods, according to the Treasury Department. Only a little more than 7,000 have received permanent modifications.”
“There are a number of adverse consequences of a trial period’s dragging on, said the [National] consumer law center’s [Diane] Thompson. Because a homeowner is not making a full payment, the balance of the mortgage grows during the trial period. The servicer reports the shortfall to credit reporting agencies, so the homeowner’s credit score can drop. And most important, says Thompson, the homeowner isn’t saving money in case the modification fails and the home is foreclosed. ‘Keeping someone in a trial modification really does not do them a favor,’ she said.”
Earlier this year, borrowers in Washington state and Arizona filed lawsuits against Bank of America over loans that were not modified. Those homeowners also were seeking class-action status.
I don't know about you, but I don't feel good about this lawsuit. The behavior it rewards is troubling to me. All loan modifications are fraught with moral hazard, and if we allow lawsuits to compel them, we are inching ever closer to full principal forgiveness on the backs of the US taxpayer.
BTW, I want to commend Marilyn Kalfus on her great reporting. Lately I have noticed a series of excellent stories from her with hard-hitting truths about the activity in our housing market. Kudos, Marilyn, your good work is noticed and appreciated.
The illusion of wealth
People who live in Orange County are fantastic pretenders. The previous owner of today's featured property lived the good life courtesy of their house.
- This property was purchased on 4/21/2004 for $1,460,500. The owners used a $1,00,000 first mortgage and a $465,500 down payment. So far so good.
- On 6/30/2005 they refinanced with a $1,471,458 Option ARM and withdrew their entire down payment plus some extra spending money.
- On 2/20/2007 they refinanced again with a $1,650,000 first mortgage and a $220,000 HELOC.
- Total property debt was $1,870,000.
- Total mortgage equity withdrawal was $870,000 including their sizable down payment.
- Total squatting time was about 10 months.
Recording Date: 04/13/2010
Document Type: Notice of Sale
Recording Date: 11/20/2009
Document Type: Notice of Default
The property was purchased at auction for $1,485,500 on 7/16/2005. It looks as if the hard money lender put a $1,633,500 loan on the property staking claim to the first $148,000 plus interest. Whoever talked this hard money lender into the deal stands to make the rest — if there is any.
Irvine Home Address … 51 CEZANNE Irvine, CA 92603
Resale Home Price … $1,849,000
Home Purchase Price … $1,485,500
Home Purchase Date …. 8/16/2010
Net Gain (Loss) ………. $252,560
Percent Change ………. 17.0%
Annual Appreciation … 138.8%
Cost of Ownership
$1,849,000 ………. Asking Price
$369,800 ………. 20% Down Conventional
4.52% …………… Mortgage Interest Rate
$1,479,200 ………. 30-Year Mortgage
$362,209 ………. Income Requirement
$7,512 ………. Monthly Mortgage Payment
$1602 ………. Property Tax
$400 ………. Special Taxes and Levies (Mello Roos)
$154 ………. Homeowners Insurance
$410 ………. Homeowners Association Fees
$10,079 ………. Monthly Cash Outlays
-$1503 ………. Tax Savings (% of Interest and Property Tax)
-$1941 ………. Equity Hidden in Payment
$620 ………. Lost Income to Down Payment (net of taxes)
$231 ………. Maintenance and Replacement Reserves
$7,486 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$18,490 ………. Furnishing and Move In @1%
$18,490 ………. Closing Costs @1%
$14,792 ………… Interest Points @1% of Loan
$369,800 ………. Down Payment
$421,572 ………. Total Cash Costs
$114,700 ………… Emergency Cash Reserves
$536,272 ………. Total Savings Needed
Baths: 3 full 1 part baths
Home size: 3,600 sq ft
($514 / sq ft)
Lot Size: 9,327 sq ft
Year Built: 2004
Days on Market: 6
Listing Updated: 40435
MLS Number: S632282
Property Type: Single Family, Residential
Community: Turtle Ridge
TUSCAN BEAUTY!! Gate guarded in Turtle ridge..Very impressive and emotional neighborhood. Exceptional elevations and endless views. Extenxive stone exterior finishes. The emotion starts at the curb…Enter thru a private gate into the courtyard with cozy fireplace and dramatic water feature. Newly updated with new carpet, paint and lush landscaping. Extensive marble floors downstairs. Gourmet kitchen with granite counters and stainless appliances. Seperate wine room as well with a wrought iron door. Three bedrooms in the main house and a detached casitas with private bedroom/bath and an optional family room which also can be used for a gym or private office. Oversized master suite with walk in closets. dual sinks and large sitting area. Large view windows to give you a light and bright ambiance.Entetainers backyard is complete with extended family room area, built in bbq, fireplace and endless views of the mountains and city lights. MODEL PERFECT!!