Mortgage modification nightmare

Homeowner files a class action suit, accusing lenders with overcharging her thousands of dollars in fees

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When Mary E. Glover fell on hard times and could not pay her mortgage for four months, she found herself in a mortgage modification nightmare, being shuffled around by financial institutions and not knowing from one day to the next if they would take her home.

"So many times they told me one thing, then something else happened," said the 55-year-old Clairton woman. "Everything kept changing. It has really been an emotional toll on me. I got to a point where I couldn't really trust what the mortgage company was telling me."

Determined to save the home she had purchased from a cousin for $10,000, she was able to win two separate mortgage modifications from two different companies that either owned or serviced her mortgage.

But in the process she said she believes the mortgage companies also had overcharged her thousands of dollars in fees.

Ms. Glover suspected she was not the only homeowner in that situation and in 2008 she sued the companies involved in servicing her mortgage -- Wells Fargo, Goldman Sachs and Udren Law Offices -- on behalf of an estimated 60,000 people, like herself, who appear to have been overcharged.

Her class action lawsuit -- which was filed in the Court of Common Pleas of Allegheny County, but later moved to the Federal Court of the Western District of Pennsylvania -- is restricted to Pennsylvania residents and is limited to people who were originally financed by the now defunct Washington Mutual Bank. In addition, they must have had their mortgages serviced by Wells Fargo when Washington Mutual went bankrupt and its assets went into receivership.

The suit seeks millions of dollars worth of overcharges, including attorney fees, that allegedly were imposed on the class of 60,000 people.

Both the number of people affected and the possibility of overcharges was calculated based on the assumption that the banks used standardized electronic programs to collect payments and other homeowners likely were affected like Ms. Glover, according to the lawsuit.

The lawsuit also seeks to change the way banks do business in the future with foreclosed homeowners by limiting fees to amounts approved by the courts.

Even if the suit is found to have merit, there's a question at the moment about whether she can afford to keep fighting.

The opposing sides about a year ago asked the judge overseeing the case -- Pittsburgh magistrate Robert C. Mitchell -- to settle disputes related to producing documents and information. Frustrated by delays, the magistrate recently ordered Ms. Glover and the financial institutions to pay to have the disputes decided by a special master, a local attorney appointed by the court.

Judge Mitchell ordered the parties to split the cost, with Ms. Glover -- who lives on Social Security disability income -- paying half and the two banks paying the other half of the special master's $400-an-hour minimum fee.

The appointment of special masters is usually only taken when complicated issues must be resolved, such as in patent cases. Attorneys usually will pay all anticipated costs of filing lawsuits of this nature, but the cost of a special master could go through the roof, especially if one or both sides decide to stonewall while the $400 hourly rate continues to add up.

Judge Mitchell declined to comment on the case.

Ms. Glover is getting a little help from an activist organization that has decided to weigh in on the case.

"We feel it is important to have this order overturned," said Scott Michelman, staff attorney for the Washington, D.C.-based organization, Public Citizen, a consumer rights group founded 40 years ago by consumer advocate Ralph Nader.

Public Citizen on Thursday filed a petition in the U.S. Court of Appeals for the Third Circuit on Ms. Glover's behalf.

"It's a real David-versus-Goliath situation in terms of financial resources," said Mr. Michelman, adding that the special master could easily spend 60 hours on the case and Ms. Glover's share of the $24,000 bill would amount to more than her yearly income of $10,000.

"This is both a consumer case and an access-to-justice case," Mr. Michelman said. "Ms. Glover is a consumer of mortgage services like many Americans. If Ms. Glover could be forced out of court by this type of special master order, it would set a dangerous precedent for disabling consumers from enforcing their rights."

Public Citizen regularly becomes involved in civil appeals in which low-income people are denied access to court for any number of reasons.

It was not Ms. Glover's intention to make headlines in August 2002 when she took out a $9,997 mortgage at 7.125 percent interest to buy a three-bedroom, wood-frame house from her cousin. She only wanted to be a homeowner.

She made all of her payments on time for several years. But she missed three payments after being injured in an automobile accident in March 2005 and was unable to work at her job as a security guard.

She notified WaMu of her problem and asked for a loan modification to reduce her monthly payments. Instead the bank threatened to evict her if she did not promptly pay the three missed payments and late fees totalling $559.15.

She said she made numerous phone calls talking to different people at the bank and faxing the same documents to WaMu representatives before the bank eventually entered into a forbearance agreement.

Washington Mutual agreed to postpone Ms. Glover's monthly payments from December 2005 through April 2006. Afterwards, the bank said it would reevaluate her application and negotiate a permanent solution, according to court documents.

Instead, WaMu Bank notified Ms. Glover on March 14, 2006, that her request for a modification was denied and her case was being referred to the Philadelphia law firm Udren Law Offices, which was serving as the lender's debt collector.

Udren Law Offices then demanded Ms. Glover immediately pay $3,397.28, about half of which was attorney fees. According to Ms. Glover's attorney Michael Malakoff, of Downtown Pittsburgh firm Malakoff & Brady, the fees exceeded Pennsylvania's $50 maximum on allowable pre-foreclosure fees.

Udren filed a foreclosure action against Ms. Glover in April 2006 on behalf of WaMu Bank, claiming her balance had swollen to $12,652.36, which included $1,855 for collection costs, with $1,200 in "anticipated and actual" attorneys' fees.

Then in June 2006, WaMu offered Ms. Glover a loan modification that added $2,237.73 to her principal balance. Ms. Glover accepted and began making monthly payments of $170.

But WaMu allegedly failed to apply her payments to her principal, interest or escrow. Instead, most of her payments were placed in a non-interest bearing account.

Mr. Malakoff believes this sort of thing happens because of systems run by computers.

"When the Ms. Glovers of the world underpay their mortgage, the computer doesn't know what to do and puts the payment into a suspense account and defaults the homeowner. At that point, you need a live person to look at the account, and those people don't exist.

"In Ms. Glover's case, and nationally in millions of other cases, the system collapsed," he said. "The computer didn't know what to do with the money, and put it into a suspense account where she received no credit. But the bank did have use of the funds during that time."

He said Ms. Glover was overcharged by at least $1,169.45, money refunded to her without interest in March 2008. He believes she is entitled to a refund of other money as well, including overcharges for attorney fees.

Attorneys representing Wells Fargo, Udren Law Offices and Goldman Sachs declined to comment.

Goldman Sachs Mortgage Co. owned Ms. Glover's mortgage through a securitized portfolio consisting of mortgages that were purchased from and serviced by Washington Mutual. But in November 2006, Goldman Sachs replaced Washington Mutual with Wells Fargo to service its mortgage accounts.

Wells Fargo did not honor Washington Mutual's loan modification agreement. The company sent Ms. Glover a letter in December 2006 stating she owed $5,715.18 because she should have been making payments of $208.44 instead of the $170 she had worked out with WaMu.

In January 2008, Wells Fargo agreed on a loan modification with Ms. Glover, which included $1,571 in fees added to the loan. Today, she makes mortgage payments of $196 out of her $802 monthly Social Security disability income. Her principal balance on the initial $10,000 loan stands at $11,000 after 10 years of payments.

"It's been a long process," Ms. Glover said. "This house is all I have and I've been fighting just to keep it because I have so much invested into it. I wasn't just going to walk away from it."

homes - businessnews

Tim Grant: or 412-263-1591


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