Officials warn home buyers of ‘predatory servicing’

Some loan-servicing companies have incentive to put homeowners in default, attorney says



HOWLAND — Carl Clemens isn’t lying down for a big mortgage company that he feels unfairly tried to kick him out of his Knickerbocker Drive home through foreclosure.

Clemens, 54, and his attorney, Philip Zuzolo, have decided the best way to combat GMAC’s actions is to take Clemens’ foreclosure case to trial. An Aug. 9 trial date has been set.

“It will go to trial,” Zuzolo said of the foreclosure GMAC Mortgage LLC of suburban Philadelphia filed in Trumbull County Common Pleas Court against Clemens in April 2009 and the countersuit Zuzolo filed for wrongful foreclosure.

The reason Zuzolo and Clemens feel they can win is that Clemens made his mortgage payment for nine months leading up to the foreclosure filing, and did everything else he was required to do, they say. Clemens has put his payments since then in an escrow account.

GMAC representatives told Clemens they foreclosed because Clemens failed to send them the paperwork on the loan modification he worked out with GMAC in July 2008. In March 2009, GMAC said Clemens had to pay off the entire loan, or it would foreclose.

“They said it’s because we never got the paperwork,” Zuzolo said. “Now, you took all these payments for nine months, and you just have to foreclose on the guy who only owes you $15,000 more on this loan?”

Clemens took out a loan of $68,700 from BancOne in 1994. The loan changed hands a couple times since then, Clemens said. The home is now valued at $107,000, according to the Trumbull County Auditor’s Office. The foreclosure, filed in 2009, said Clemens owed GMAC $15,617.

Zuzolo and Atty. Jeff Adler, who also works for Clemens, say they have a certified mail receipt that the information GMAC asked for was received by GMAC.

“It’s their word against mine,” said Clemens, former owner of Punky’s Pit Stop, a convenience store and catering business on Belmont Avenue in Liberty. “Only thing is, we have a paper trail to prove it.”

Clemens said he hired Zuzolo to serve as co-counsel with Adler, of Hubbard, in September because of Zuzolo’s reputation for battling the loan-servicing companies.

Zuzolo says Clemens is an example of a widespread problem affecting homeowners in the Mahoning Valley and across the country, a problem some people have called predatory servicing. It involves loan-servicing companies such as GMAC, which Zuzolo says have a greater incentive to put homeowners in default than leave them alone to pay off their loan.

Douglas A. MacKinnon, the attorney representing GMAC in Clemens’ foreclosure case, did not return a call seeking comment.

Zuzolo, of Niles, says a case involving another Howland homeowner involved predatory practices to the extent that the mortgage servicer was willing to write off the person’s remaining mortgage and pay a six-figure settlement late in 2008 to avoid having the case go to trial.

In that case, after the homeowner refinanced his loan, there was a problem with the address where the loan payments were supposed to be mailed. The homeowner made his mortgage payments, but the mortgage company foreclosed anyway. The home was sold at sheriff’s sale in May 2007, but Judge Peter Kontos in Trumbull County Common Pleas Court rescinded the sale in August 2007.

Zuzolo says it is wise to assume the worst of many companies servicing mortgage loans.

“Don’t assume they have your best interests at heart,” Zuzolo warned. Local banks that have not sold the loan to another company seem to be less motivated by such schemes, he added.

Zuzolo said every foreclosure doesn’t involve improper conduct by the loan servicing company, but it makes sense in many cases to seek help from a lawyer or foreclosure adviser. The average person doesn’t know enough to combat a mortgage-servicing company on his or her own.

“Just seek out somebody, Legal Aid or somebody. You can fight them,” Zuzolo said.

Clemens’ case demonstrates one of the mortgage servicing companies’ most common and frustrating tactics: denying that they received documents from the homeowner, Zuzolo said.

Another common tactic is to “force-place” homeowners insurance on a homeowner who already has it. The additional insurance can be three to four times higher than normal and can cause a homeowner to fall behind, leading to foreclosure, Zuzolo said.

Adler, who is also an assistant county prosecutor, Hubbard’s law director and a private attorney, said he believes mortgage companies make a lot of mistakes because they are so big and indifferent to their customers.

“Some of them are just foreclosure mills,” he said.

Zuzolo said many people don’t understand that it’s frequently not a bank that services their mortgage loan. It’s a company that has purchased loans in a pool. As such, their main motivation is to satisfy the desires of investors who bought the loans on the stock market, not to provide service to the mortgage customer.

One of the best ways for such companies to make money is to find a way to charge the homeowner a late fee or property inspection, Zuzolo said.

Jack M. Guttentag, professor of finance emeritus at the Wharton School of the University of Pennsylvania, wrote on his web site that mortgage companies that originate loans have an incentive to provide good service to those borrowers they view as potential clients for new loans or other services.

The incentive disappears, however, for borrowers with spotty payment records, who are not viewed as potential customers for other services.

Ohio Attorney General Richard Cordray says the “exotic” loans that led to the national foreclosure crisis have abated in recent years, but predatory servicing has not.

He has filed three lawsuits in recent months against companies suspected of carrying out predatory loan servicing in Ohio — American Home Mortgage Servicing Inc., HomEq Servicing, and Carrington Mortgage Services, LLC.

“The acts of some mortgage servicers have gone beyond the point of being negligent. They have become predatory financial practices, and in Ohio, they won’t be tolerated,” Cordray said recently.

Through the lawsuits, Cordray said he hopes to bring about more cooperation among loan servicers in arranging loan modifications through the Home Affordable Modification Program.

So far, of the loans eligible for a HAMP modification, only 1 percent have been modified, Codray said.

Cordray has also sued two foreclosure rescue and legal services companies that Cordray says took up-front money from people in fear of losing their homes to foreclosure and delivered nothing in return.

Cordray said predatory servicing is a “significant” problem in Ohio, though he said he was unable to estimate what percentage of Ohio foreclosures would be avoided if not for such practices.

In the case of Clemens, it’s hard to understand GMAC’s motivation for foreclosing on his mortgage when he paid his loan for nine months leading up to the foreclosure and mailed the necessary paperwork, Zuzolo said.

“The question is begged: Why? Why are they doing this?” Zuzolo said. “I think through this litigation we’re just beginning to discover that ... even the last $15,000 balance, it’s going to be much more profitable to put [Clemens] through the default process,” Zuzolo said.

Clemens, who has been going gradually blind over the past five years from retinitis pigmentosa, says he’s ready for a fight and doesn’t want to leave his home.

“I told them [GMAC] ‘It’s game on.’ What do I have to lose right now?”

Clemens said dealing with GMAC since July 2008 has made him angry and anxious.

“It gets me upset because you sit there, and you try to work this out. You’re thinking ‘OK, it’s behind me now. All you’ve got to do is pay a couple more years.’

“You can’t sleep. You’re waiting for your name to come up in the newspaper. Because the system’s right. We’re wrong, and that’s B.S. We are not wrong. In this situation, I am not even 1 percent wrong.

“You want to hear about the American dream? It turns into the American nightmare.”

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