NC and 10 other states reach agreement with Countrywide to help nearly 400,000 homeowners facing foreclosure

North Carolina Attorney General Roy Cooper says agreement will offer help to more than 5,000 NC homeowners

Raleigh: Mortgage lender Countrywide Financial Corporation has agreed to provide approximately $8 billion in home loan and foreclosure relief to as many as 397,000 homeowners across the country including more than 5,000 in North Carolina, Attorney General Roy Cooper recently announced. Eleven states including North Carolina reached the agreement with Charlotte-based Bank of America, which acquired Countrywide in July of 2008. The agreement is expected to provide $71 million in reduced mortgage payments to more than 5,000 North Carolina borrowers.

“Thousands of North Carolinians who are struggling to pay their mortgages and keep their homes will get relief thanks to this agreement,” Cooper said. “Other mortgage companies need to step up to the plate with similar plans to help homeowners facing foreclosure.”

Under the settlement, Countrywide has agreed to modify loans for eligible borrowers so they will be better able to afford to keep their homes. Modifications may include an automatic freeze or reduction in interest rates, conversion to fixed-rate loans, and refinancing or reduction of the principal owed. Under the modifications, first-year payments of principal, interest, taxes and insurance will be targeted to equal 34 percent of the borrower’s income.

Countrywide has also agreed to stop making problematic high-cost mortgages and payment option adjustable rate mortgages. In addition, Bank of America and Countrywide will pay $150 million to participating states to help consumers who have already lost their homes to foreclosure.

Bank of America and Countrywide will also pay up to $70 million for relocation assistance to borrowers unable to stay in their homes, and will waive up to $60-$80 million in prepayment penalties and default fees.

The settlement resolves allegations that Countrywide used unfair and deceptive tactics in making and servicing home loans. As a result, homeowners were often stuck with unfair loans they couldn’t afford.

Countrywide is the largest provider of subprime mortgages in the United States. Countrywide is expected to start the loan modification program by December 1, 2008, and the company has said that it will reach out to eligible customers by that date. Countrywide has also said that it will halt foreclosure proceedings against homeowners who are likely to qualify for loan modifications under the agreement.

Countrywide customers can call 800-669-6607 toll-free for more information or visit the company’s
website at

North Carolina residents who are facing foreclosures and who are not Countrywide borrowers can get free help by calling the HOPE Hotline toll-free at 888-995-HOPE 24 hours a day, seven days a week.

“Families are hurting and they need help,” NC Attorney General Cooper said. “It’s in all of our interest to help homeowners find a way out of foreclosure when possible.”

Along with North Carolina, attorneys general in Arizona, California, Connecticut, Florida, Illinois, Iowa, Michigan, Ohio, Texas and Washington are participating in the agreement with Countrywide.


As more people struggle under credit card debt, many banks are intensifying their collection efforts, the Wall Street Journal reported recently. Citigroup Inc. has hired more collectors, increased the frequency of calls to delinquent customers and expanded programs that let borrowers temporarily postpone payments or settle debt for less than the borrowers owe.

Bank of America Corp., meanwhile, is contacting late-paying customers earlier than it has in the past. The moves come at a time when rising unemployment and a credit crunch are forcing more consumers to default on their credit card payments.

The percentage of bank credit card accounts that are delinquent rose to 4.51 percent in the first quarter — the latest available — from 4.41 percent in the year-earlier quarter, according to the American Bankers Association. Banks reported increases in delinquency rates in their second-quarter earnings reports, and they expect the problems to get worse.

Banks are under tremendous pressure to shore up their balance sheets amid an onslaught of bad loans and mortgages. Financial institutions are responding by working past-due accounts more aggressively. They are putting their best collectors on their toughest-to-collect accounts (those that are at least 60 or 90 days past due), hiring outsourcing firms to supplement their internal efforts and putting new hires on accounts that are in the early stages of delinquencies, according to experts.


Legislation Will Help Homeowners Keep Loans Affordable And Reasonable

Raleigh – North Carolina Gov. Mike Easley called on the General Assembly to give quick approval to legislation that will help thousands of homeowners with exploitive subprime mortgages avoid foreclosure. The legislation requires that borrowers receive at least 45 days notice before foreclosure proceedings are started and directs the NC Banking Commissioner to work with individual borrowers and their lenders to find ways to save their homes.

“Many subprime borrowers were placed into loans in which interest rates increased, and which they simply could not afford,” Easley said. “We have all been looking to the federal government to step in and do something about these foreclosures and they have done nothing. So we decided we would do it on the state level. And if nothing else, we can at least help the people of North Carolina.”

The bill, sponsored by state Rep. Dan Blue (D-Wake), requires that lenders give borrowers with subprime loans 45 days written notice before filing foreclosure proceedings. It also establishes the “State Foreclosure Prevention Project,” under which NC Commissioner of Banks Joe Smith will help lenders and borrowers work out solutions to avoid foreclosures. Smith will have the authority to bring the mortgage companies, housing counselors, community groups, state agencies and others together to help borrowers stay in their homes. It also authorized the Commissioner of Banks to extend the filing date for a foreclosure for up to 30 days if there is a potential to work out terms. There is no cost to the taxpayers.

North Carolina has been a model for the nation in protecting borrowers from unscrupulous lenders. Legislation championed in 1999 by the governor when he was attorney general was the first to address predatory lenders. Last year, the governor signed laws that limited the amount mortgage brokers could charge and added additional protections for borrowers from abusive adjustable-rate mortgages as well as requiring lenders to ensure that loan terms matched a borrower’s ability to pay.

North Carolina ranks second in the nation, Easley noted, for financial institutions based in the state. “When the banks come together and support something, it means something nationally and people take notice,” he said. “If we can make this work, that is something that can help us sell it around the country.”

Because of the state’s leading efforts at imposing strong regulation, the state has fewer sub-prime loans, ranking 45th in the nation in concentration of subprime lending. The state has fewer adjustable rate loans, half the national average. As a result, the state has had less mortgage fraud, ranking 33rd out of the 44 reporting states. The foreclosure rates in North Carolina have not been as severe as in other regions. Foreclosure actions increased 9 percent in 2007 to 49,498.

For more information on mortgages and foreclosure, visit the State Commissioner of Banks’ web site at:

NC Superior Court Judge Stops Premier Subprime Credit Card Solicitations

N.C. judge puts restraining order on credit card company

A North Carolina Superior Court judge has ordered an Arizona company to stop contacting consumers in North Carolina and offering them credit cards.

North Carolina Attorney General Roy Cooper’s office says Premier Nationwide Corp.
of Scottsdale, Arizona, has previously contacted consumers by mail and phone, offering them pre-approved credit cards with high credit lines and low interest. Those who agreed to the deal were asked to pay an upfront processing fee of $379.00 and then told to contact a bank to get their credit cards. But when they did so, they were often told to fill out a credit-card application — which was usually denied, Cooper’s office says. The office received complaints that Premier Savings refused to refund the processing fee.

Cooper’s office says a judge placed a temporary restraining owner on the company, preventing it from contacting North Carolinians. The office is seeking a court order that would require Premier Savings to repay consumers and pay fines to the state.

"With tough economic times, the last thing consumers need is to pay for help they don’t receive," Cooper says in a statement. "We’ll keep working to hold companies to their promises."

Hope Now’s Successes May Be Over Rated

According to a story written by Lynnley Browning in a recent edition of the New York Times, Hope Now, the White House’s initial answer to the country’s mounting foreclosures, is failing to provide much help to struggling homeowners, largely because it is operated by the very people who caused the problem in the first place.

Hope Now was established in July of 2007 to serve as a portal for homeowners with subprime mortgages to enter the system and seek help.  Persons calling the program’s hotline would be plugged into credit counselors and appropriate lenders’ representatives, who would, ostensibly, assist them in resolving their problems. The program was expanded in February with the addition of "Project Lifeline" which extended the program to prime and Alt-A borrowers and put a 30-day moratorium on foreclosures in place for those who seek help.

In March 2008, Hope Now released data on its results through the end of January. They claimed to have been responsible for a total of 1,035,000 loan workouts which included 758,000 repayment plans and 278,000 loan modifications. A modification occurs any time any term of the original loan contract is permanently altered – through a reduction in rate, forgiveness of a portion of the principal, or change in the maturity date. A repayment plan allows the borrower to become current and catch up on missed payments without any substantial or permanent alteration of the loan terms.

The report stated that the number of modifications as opposed to repayment plans has been rising steadily. In the third quarter of 2007, 19 percent of all workouts were modifications; in the fourth quarter it was 35 percent; and in January, 50 percent of the workouts were modifications – 45,320 modifications vs. 48,155 repayment plans.

Ms. Browning, however, reports quite different results.

Everyday, she states, more than 4,500 people call Hope Now, but few of them appear to be getting the relief they are hoping for. "One reason is that the financial powers behind Hope Now – mortgage lenders, loan servicers and big investors – are reluctant to change loan terms substantially if doing so hurts them."

She says that the group is coming under fire from within and without for putting the interests of lenders over those of borrowers. Hope Now’s executive director Faith Schwartz is an executive at the subprime lender Option One Mortgage.

Hope Now is run out of the Housing Policy Council, which in turn is part of the Financial Services Roundtable, the influential financial services lobby. The Roundtable and another big industry group behind Hope Now, the American Securitization Forum, oppose any government housing effort that would require them to take losses on bad mortgage loans. Another component of the Hope Now alliance, the non-profit Homeownership Preservation Foundation, was established in 2003 with a $20 million grant from GMAC-RFC, a mortgage lender.

Ms. Browning’s article states that Hope Now employs just three people. Most of its work is done through committees staffed by senior bank and mortgage executives who are part of the Financial Services Roundtable.

Hope Now counselors are urged to follow the guidelines of the American Securitization Forum which represents financial companies that bundle mortgages for sale to investors. The Forum’s executive director George Miller told The Times that it represents the interests of investors and "we want to minimize losses on bad mortgages and maximize recovery."

The group’s guidelines on loan modifications advise lenders to modify loans case by case rather than across the board. Both the Forum and the Roundtable oppose calls to open up bankruptcy courts for struggling homeowners, a move that could lead to further losses for their members.

The Times article maintains that even Hope Now is unsure of its effectiveness. It does not break out the number of loan workouts that occur as a result of its efforts and those that might have happened anyway. Some people who work with Hope Now say it has done little to keep the housing crisis from deepening.

According to the Homeowners Preservation Foundation, only about four percent of callers to the Hope Now hotline end up talking in person with a mortgage counselor.

"Hope Now is a failure," said Michael Shea, the executive director of the Acorn Housing Corporation, a large counseling agency that is part of the Hope Now alliance. "It’s industry-dominated."

U.S. Senate Throws Out Single Most Needed Step to Help Millions of American Families Keep Their Homes

Joint Statement from Civil Rights, Consumer, & Housing Groups

Washington, DC – More than 15 national organizations (listed below) issued the following joint statement in response to the Foreclosure Prevention Act and its failure to include bankruptcy measures:

"The Senate Housing package misses the single most significant step needed to help the 20,000 American families with subprime loans that are losing their homes each week through foreclosure: the bankruptcy amendment.

We are left with a bill loaded with special considerations for mortgage companies and builders that does very little for homeowners who were sold predatory loans by mortgage lenders.

Any final bill hammered out between the U.S. House and Senate that is a serious effort to stem the foreclosure crisis must include meaningful relief to families to modify their mortgage in bankruptcy. Bankruptcy relief will stabilize communities, keep more than half a million families in their homes and provide lenders at least as much income as they would receive through foreclosure.

As the Senate bill stands, we will continue to see foreclosures tear down communities and wipe out the most important source of financial security that most Americans have.

We are encouraged that there is recognition that the bill under consideration by the U.S. Senate today is only part of the solution. Without bankruptcy relief, Congress will be condemning hundreds of thousands of American families this year to losing their homes.

Center for Responsible Lending

Leadership Conference on Civil Rights


American Federation of Labor and Congress of Industrial Organizations

Consumer Action

Consumer Federation of America

Consumers Union

Lawyers’ Committee for Civil Rights Under Law

NAACP Legal Defense & Educational Fund, Inc.

National Association of Consumer Advocates (NACA)

National Association of Consumer Bankruptcy Attorneys (NACBA)

National Consumer Law Center

National Association of Neighborhoods

National Community Reinvestment Coalition

National Council of La Raza

National Fair Housing Alliance

Opportunity Finance Network

Service Employees International Union (SEIU)

New York Times: “The Foreclosure Machine”

March 30, 2008
The New York Times

The Foreclosure Machine

Nobody wins when a home enters foreclosure — neither the borrower, who is evicted, nor the lender, who takes a loss when the home is resold. That’s the conventional wisdom, anyway.
The reality is very different. Behind the scenes in these dramas, a small army of law firms and default servicing companies, who represent mortgage lenders, have been raking in mounting profits. These little-known firms assess legal fees and a host of other charges, calculate what the borrowers owe and draw up the documents required to remove them from their homes.

As the subprime mortgage crisis has spread, the volume of the business has soared, and firms that handle loan defaults have been the primary beneficiaries. Law firms, paid by the number of motions filed in foreclosure cases, have sometimes issued a flurry of claims without regard for the requirements of bankruptcy law, several judges say.

Much as Wall Street’s mortgage securitization machinery helped to fuel questionable lending across the United States, default, or foreclosure, servicing operations have been compounding the woes of troubled borrowers. Court documents say that some of the largest firms in the industry have repeatedly submitted erroneous affidavits when moving to seize homes and levied improper fees that make it harder for homeowners to get back on track with payments. Consumer lawyers call these operations “foreclosure mills.”

“They get paid by the volume and speed with which they process these foreclosures,” said Mal Maynard, director of the Financial Protection Law Center, a nonprofit firm in Wilmington, North Carolina.

John and Robin Atchley of Waleska, Georgia, have experienced dubious foreclosure practices first hand. Twice during a four-month period in 2006, the Atchleys were almost forced from their home when Countrywide Home Loans, part of Countrywide Financial, and the law firm representing it said they were delinquent on their mortgage. Countrywide’s lawyers withdrew their motions to seize the Atchleys’ home only after the couple proved them wrong in court.

The possibility that some lenders and their representatives are running roughshod over borrowers is of increasing concern to bankruptcy judges overseeing Chapter 13 cases across the country. The United States Trustee Program, a unit of the Justice Department that oversees the integrity of the nation’s bankruptcy courts, is bringing cases against lenders that it says are abusing the bankruptcy system.

Joel B. Rosenthal, a United States bankruptcy judge in the Western District of Massachusetts, wrote in a case last year involving Wells Fargo Bank that rising foreclosures were resulting in greater numbers of lenders that “in their rush to foreclose, haphazardly fail to comply with even the most basic legal requirements of the bankruptcy system.”

Law firms and default servicing operations that process large numbers of cases have made it harder for borrowers to design repayment plans, or workouts, consumer lawyers say. “As I talk to people around the country, they all unanimously state that the foreclosure mills are impediments to loan workouts,” Mr. Maynard said.

LAST month, almost 225,000 properties in the United States were in some stage of foreclosure, up nearly 60 percent from the period a year earlier, according to RealtyTrac, an online foreclosure research firm and marketplace.

These proceedings generate considerable revenue for the firms involved: eviction and appraisal charges, late fees, title search costs, recording fees, certified mailing costs, document retrieval fees, and legal fees. The borrower, already in financial distress, is billed for these often burdensome costs. While much of the revenue goes to the law firms hired by lenders, some is kept by the servicers of the loans.

Fidelity National Default Solutions, a unit of Fidelity National Information Services of Jacksonville, Fla., is one of the biggest foreclosure service companies. It assists 19 of the top 25 residential mortgage servicers and 14 of the top 25 subprime loan servicers.

Citing “accelerating demand” for foreclosure services last year, Fidelity generated operating income of $443 million in its lender processing unit, a 13.3 percent increase over 2006. By contrast, the increase from 2005 to 2006 was just 1 percent. The firm is not associated with Fidelity Investments.

Law firms representing lenders are also big beneficiaries of the foreclosure surge. These include Barrett Burke Wilson Castle Daffin & Frappier, a 38-lawyer firm in Houston; McCalla, Raymer, Padrick, Cobb, Nichols & Clark, a 37-member firm in Atlanta that is a designated counsel to Fannie Mae; and the Shapiro Attorneys Network, a nationwide group of 24 firms.
While these private firms do not disclose their revenues, Wesley W. Steen, chief bankruptcy judge for the Southern District of Texas, recently estimated that Barrett Burke generated between $9.7 million and $11.6 million a year in its practice. Another judge estimated last year that the firm generated $125,000 every two weeks — or $3.3 million a year — filing motions that start the process of seizing borrowers’ homes.
Court records from 2007 indicate that McCalla, Raymer generated $10.4 million a year on its work for Countrywide alone. In 2005, some McCalla, Raymer employees left the firm and created MR Default Services, an entity that provides foreclosure services; it is now called Prommis Solutions.
For years, consumer lawyers say, bankruptcy courts routinely approved these firms’ claims and fees. Now, as the foreclosure tsunami threatens millions of families, the firms’ practices are coming under scrutiny.
And none too soon, consumer lawyers say, because most foreclosures are uncontested by borrowers, who generally rely on what the lender or its representative says is owed, including hefty fees assessed during the foreclosure process. In Georgia, for example, a borrower can watch his home go up for auction on the courthouse steps after just 40 days in foreclosure, leaving relatively little chance to question fees that his lender has levied.

A recent analysis of 1,733 foreclosures across the country by Katherine M. Porter, associate professor of law at the University of Iowa, showed that questionable fees were added to borrowers’ bills in almost half the loans.

Specific cases inching through the courts support the notion that figures supplied by lenders are often incorrect. Lawyers representing clients who have filed for Chapter 13 bankruptcy, the program intended to help them keep their homes, say it is especially distressing when these numbers are used to evict borrowers.
“If the debtor wants accurate information in a bankruptcy case on her mortgage, she has got to work hard to find that out,” said Howard D. Rothbloom, a lawyer in Marietta, Georgia, who represents borrowers. That work, usually done by a lawyer, is costly.

Mr. Rothbloom represents the Atchleys, who almost lost their home in early 2006 when legal representatives of their loan servicer, Countrywide, incorrectly told the court that the Atchleys were 60 days delinquent in Chapter 13 plan payments two times over four months. Borrowers can lose their homes if they fail to make such payments.

After the Atchleys supplied proof that they had made their payments on both occasions, Countrywide withdrew its motions to begin foreclosure. But the company also levied $2,793 in fees on the Atchleys’ loan that it did not explain, court documents said. “Every paycheck went to what they said we owed,” Robin Atchley said. “And every statement we got, the payoff was $179,000 and it never went down. I really think they took advantage of us.” 

The Atchleys, who have four children, sold the house and now rent. Mrs. Atchley said they lost more than $23,000 in equity in the home because of fees levied by Countrywide.

The United States Trustee sued Countrywide last month in the Atchley case, saying its pattern of conduct was an abuse of the bankruptcy system. Countrywide said that it could not comment on pending litigation and that privacy concerns prevented it from discussing specific borrowers.
A generation ago, home foreclosures were a local business, lawyers say. If a borrower got into trouble, the lender who made the loan was often a nearby bank that held on to the mortgage. That bank would hire a local lawyer to try to work with the borrower; foreclosure proceedings were a last resort.  Now foreclosures are farmed out to third-party processors who hire local counsel to litigate. Lenders negotiate flat-fee arrangements to try to keep legal bills down.
An unfortunate result, according to several judges, is a drive to increase revenue by filing more motions. Jeff Bohm, a bankruptcy judge in Texas who oversaw a case between William Allen Parsley, a borrower in Willis, Tex., and legal representatives for Countrywide, said the flat-fee structure “has fostered a corrosive ‘assembly line’ culture of practicing law.” Both McCalla, Raymer and Barrett Burke represented Countrywide in the matter.
Gee Aldridge, managing partner at McCalla, Raymer, called the Parsley case unique. “It is the goal of every single one of my clients to do whatever they can do to keep borrowers in their homes,” he said. Officials at Barrett Burke did not return phone calls seeking comment.

In a statement, Countrywide said it recognized the importance of the efficient functioning of the bankruptcy system. It said that servicing loans for borrowers in bankruptcy was complex, but that it had improved its procedures, hired new employees and was “aggressively exploring additional technology solutions to ensure that we are servicing loans in a manner consistent with applicable guidelines and policies.”

The September 2006 issue of "The Summit", an in-house promotional publication of Fidelity National Foreclosure Solutions, another unit of Fidelity, trumpeted the efficiency of its 18-member “document execution team.” Set up “like a production line,” the publication said, the team executes 1,000 documents a day, on average.

Other judges are cracking down on some foreclosure practices. In 2006, Morris Stern, the federal bankruptcy judge overseeing a matter involving Jenny Rivera, a borrower in Lodi, N.J., issued a $125,000 sanction against the Shapiro & Diaz firm, which is a part of the Shapiro Attorneys Network. The judge found that Shapiro & Diaz had filed 250 motions seeking permission to seize homes using pre-signed certifications of default executed by an employee who had not worked at the firm for more than a year.
In testimony before the judge, a Shapiro & Diaz employee said that the firm used the pre-signed documents beginning in 2000 and that they were attached to “95 percent” of the firm’s motions seeking permission to seize a borrower’s home. Individuals making such filings are supposed to attest to their accuracy. Judge Stern called Shapiro & Diaz’s use of these documents “the blithe implementation of a renegade practice.”   Nelson Diaz, a partner at the firm, did not return a phone call seeking comment.

Butler & Hosch, a law firm in Orlando, Fla., that is employed by Fannie Mae, has also been the subject of penalties. Last year, a judge sanctioned the firm $33,500 for filing 67 faulty motions to remove borrowers from their homes. A spokesman for the firm declined to comment.
Barrett Burke in Texas has come under intense scrutiny by bankruptcy judges. Overseeing a case last year involving James Patrick Allen, a homeowner in Victoria, Tex., Judge Steen examined the firm’s conduct in eight other foreclosure cases and found problems in all of them. In five of the matters, documents show, the firm used inaccurate information about defaults or failed to attach proper documentation when it moved to seize borrowers’ homes. Judge Steen imposed $75,000 in sanctions against Barrett Burke for a pattern of errors in the Allen case.

A former Barrett Burke lawyer, who requested anonymity to avoid possible retaliation from the firm, said, “They’re trying to find a fine line between providing efficient, less costly service to the mortgage companies” and not harming the borrower.

Both he and another former lawyer at the firm said Barrett Burke relied heavily on paralegals and other nonlawyer employees in its foreclosure and bankruptcy practices. For example, they said, paralegals prepared documents to be filed in bankruptcy court, demanding that the court authorize foreclosure on a borrower’s home. Lawyers were supposed to review the documents before they were filed. Both former Barrett lawyers said that with at least 1,000 filings a month, it was hard to keep up with the volume.

This factory-line approach to litigation was one reason he decided to leave the firm, the first lawyer said. “I had questions,” he added, “about whether doing things efficiently was worth whatever the cost was to the consumer.”

James R. and Tracy A. Edwards, who are now living in New Mexico, say they have had problems with questionable fees charged by Countrywide and actions by Barrett Burke. In one month in 2002, when the couple lived in Houston, Countrywide Home Loans withdrew three monthly mortgage payments from their bank account, Mrs. Edwards said, leaving them unable to pay other bills. The family filed for bankruptcy to try to keep their home, cars and other assets.

Filings in the bankruptcy case of the Edwards family show that on at least three occasions, Countrywide’s lawyers at Barrett Burke filed motions contending that the borrowers had fallen behind. The firm subsequently withdrew the motions.
“They kept saying we owed tons and tons of fees on the house,” Mrs. Edwards said. Tired of this battle, the family gave up the Houston house and moved to one in Rio Rancho, N.M., that they had previously rented out.
Countrywide tried to foreclose on that house, too, contending that Mr. and Mrs. Edwards were behind in their payments. Again, Mrs. Edwards said, the culprit was a raft of fees that Countrywide had never told them about — and that were related to their Texas home. Mrs. Edwards says that she and her husband plan to sue Countrywide to block foreclosure on their New Mexico home.

Pamela L. Stewart, president of the Houston Association of Debtor Attorneys, said she has become skeptical of lenders’ claims of fees owed. “I want to see documents that back up where these numbers are coming from,” Ms. Stewart said. “To me, they’re pulled out of the air.”

An inaccurate mortgage payment history supplied by Ameriquest, a mortgage lender that is now defunct, was central to a case last year in federal bankruptcy court in Massachusetts. “Ameriquest is simply unable or unwilling to conform its accounting practices to what is required under the bankruptcy code,” Judge Rosenthal wrote. He awarded the borrower $250,000 in emotional-distress damages and $500,000 in punitive damages.

Fidelity National Information Services has also been sued. A complaint filed on behalf of Ernest and Mattie Harris in federal bankruptcy court in Houston contends that Fidelity receives kickbacks from the lawyers it works with on foreclosure matters.

The case shines some light on the complex relationships between lenders and default servicers and the law firms that represent them. The Harrises’ loan servicer is Saxon Mortgage Services, a Morgan Stanley unit, which signed an agreement with Fidelity National Foreclosure Solutions. Under it, Fidelity was to provide foreclosure and bankruptcy services on loans serviced by Saxon, as well as to manage lawyers acting on Saxon’s behalf. The agreement also specified that Saxon would pay the fees of the lawyers managed by Fidelity.
But Fidelity also struck a second agreement, with an outside law firm, Mann & Stevens in Houston, which spelled out the fees Fidelity was to be paid each time the law firm made filings in a case. Mann & Stevens, which did respond to phone calls, represented Saxon in the Harrises’ bankruptcy proceedings.
According to the complaint, Mann & Stevens billed Saxon $200 for filing an objection to the borrowers’ plan to emerge from bankruptcy. Saxon paid the $200 fee, then charged that amount to the Harrises, according to the complaint. But Mann & Stevens kept only $150, paying the remaining $50 to Fidelity, the complaint said.
This arrangement constitutes improper fee-sharing, the Harrises argued. Texas rules of professional conduct bar fee-sharing between lawyers and nonlawyers because that could motivate them to raise prices — and the Harrises argue that this is why the law firm charged $200 instead of $150. And under these rules, sharing fees with someone who is not a lawyer creates a risk that the financial relationship could affect the judgment of the lawyer, whose duty is to the client. Few exceptions are permitted — like sharing court-awarded fees with a nonprofit organization or keeping a retirement plan for nonlawyer employees of a law firm.

“If it’s fee-sharing, and if it doesn’t fall into those categories, it sounds wrong,” said Michael S. Frisch, adjunct professor of law at Georgetown University. Greg Whitworth, president of loan portfolio solutions at Fidelity, defended the arrangement, saying it was not unusual for a company to have an intermediary manage outside law firms on its behalf.

The Harrises contend that the bankruptcy-related fees charged by the law firms managed by Fidelity “are inflated by 25 to 50 percent.” The agreement between Fidelity and the law firm is also hidden, according to their complaint, so a presiding judge sees only the lender and the law firm, not the middleman.

Fidelity said the money it received from the law firm was not a kickback, but payments for services, just as a law firm would pay a copying service to duplicate documents. In response to the complaint, Fidelity asserted in a court filing that the Harrises’ claims were “nothing more than scandalous, hollow rhetoric.”

But the Fidelity fee schedule shows a charge for each action taken by the law firm, not a fee per page or kilobyte. And Fidelity’s contract appears to indemnify Saxon if the arrangement between Fidelity and its law firm runs afoul of conduct rules.

Mr. Whitworth of Fidelity said that the arrangement with Mann & Stevens did not constitute fee sharing, because Fidelity was to be paid by that law firm even if the law firm itself was not paid.
He also said that by helping a servicer manage dozens or even hundreds of law firms, Fidelity lowered the cost of foreclosure or bankruptcy proceedings, to the benefit of the law firm, the servicer and the borrower. “Both parties want us to be in the middle here,” Mr. Whitworth said, referring to law firms and mortgage servicing companies.

The Fidelity contract attached to the complaint also hints at the money each motion generates. Foreclosures earn lawyers fees of $500 or more under the contract; evictions generate about $300. Those fees aren’t enormous if they require a substantial amount of time. But a few thousand such motions a month, executed by lawyers’ employees, translates into many hundreds of thousands of dollars in revenue to the law firm — and the lower the firm’s costs, the greater the profits.
“Congress needs to enact a national foreclosure bill that sets a uniform procedure in every state that provides adequate notice, due process and transparency about fees and charges,” said O. Max Gardner III, a consumer lawyer in Shelby, North Carolina. “A lot of this stuff is such a maze of numbers and complex organizational structure most lawyers can’t get through it. For the average consumer, it is mission impossible.”

Report: Debt Collection Complaints Increased in 2007

The Federal Trade Commission (FTC) reported that consumers lodged 70,951 complaints of violations of the Fair Debt Collection Practices Act by third-party debt collectors last year, 2.4 percent more than the 69,249 complaints received during 2006, according to

The most frequent complaint was that collectors attempted to collect debts that consumers did not owe or a debt larger than what consumers actually owed. In 2007, FTC received 27,393 such complaints – or 38.6 percent of all complaints, which compares with 40.3 percent of complaints to the FTC in 2006.

In 2007, 19.7 percent of FDCPA complaints the commission received (or 13,989) alleged harassment. About 6.5 percent (or 4,592 consumers) alleged that third-party collectors falsely threatened a lawsuit or some other action that they could not or did not intend to take.

Easy Credit Gives Way to High Consumer Debt and Defaults

A growing number of Americans are buckling under the weight of debt that started among homeowners with subprime mortgages last year and has spread to other consumers who rely on credit, according to the Washington Post.

Auto loan borrowers are having an especially hard time as the number of people more than 60 days late on their car payments has spiked to a 10-year high, according to Fitch Ratings. The number of repossessions soared last year by 10 percent, and it is expected to rise by the same amount this year, said Thomas Webb, chief economist for Manheim, a global car auction firm.

Similar problems are brewing for credit card holders, as card balances written off as uncollectible have jumped 24 percent and late payments are up 16 percent from a year ago. According to Moody’s latest report, cardholders are paying back less of their debt. In November, they paid back, on average, 17.9 percent of their credit card debts — about 3 percent lower than the previous November rate of 18.5 percent.

The report also revealed that the number of people more than 30 days late on their credit card payments in November rose from 3.89 percent a year ago, to 4.28 percent, the highest it’s been since March 2005. It was the fifth consecutive month-to-month increase.

Hotline to help North Carolina homeowners facing foreclosure

HOPE hotline will connect callers with local non-profits to help people keep their homes

Help for North Carolina residents who are at risk of losing their homes to foreclosure is now just a telephone call away, North Carolina Attorney General Roy Cooper and the NC Office of the Commissioner of Banks recently announced.

“It’s tragic when families lose their homes, especially when it could be prevented,” Cooper said. “One toll-free call could give them the advice they need to stop foreclosure.”

North Carolina homeowners can call the HOPE Hotline toll-free at 888-995-HOPE 24 hours a day, seven days a week to receive free counseling on options to avoid foreclosure. The hotline will connect callers with non-profit housing and credit counselors in their local community who can advise them about options such as modifying their loan, selling or refinancing their home or setting up a repayment plan with their lender.

“Homeowners struggling to pay their mortgage need to know there are resources available to help them avoid foreclosure. Call the NC HOPE Hotline and you may be able to save your home,” said Deputy Commissioner of Banks Mark Pearce.

While North Carolina has not experienced the wave of foreclosures seen in many other states due to our strong laws against unfair loans, foreclosures are on the rise in the state. Foreclosure starts were up 9.4 percent in North Carolina in 2007 and are expected to increase by 10 to 20 percent in 2008, according to the Commissioner of Banks’ office.

According to research by Freddie Mac, more than half of all homeowners who experience foreclosure never contact their mortgage company to try to avoid unnecessary foreclosure. Mortgage servicers and lenders have a strong incentive to help homeowners avoid foreclosure because they stand to lose $40,000 to $50,000 in net value when a typical home loan is foreclosed. Finding a solution to foreclosure can be in the best interest of both the homeowner and the lender.

Cooper and the Commissioner of Banks have teamed up to provide $300,000 in seed money to reimburse counselors who are able to help prevent unnecessary foreclosures for North Carolinians who call the hotline, with more reimbursement going to counselors who are able to help homeowners keep their homes. Additional funding from Congress and the General Assembly could expand access to local counselors through the hotline.

Local non-profits will also be able to connect hotline callers with other resources as needed, such as referrals for legal help when there is evidence that the homeowner may have been the victim of predatory or abusive lending practices. The Attorney General’s Office will be notified when there is a pattern of lending abuses and can take action to enforce North Carolina’s strong laws against predatory lending.

Counselors can also help connect homeowners who qualify with Federal Housing Administration secure loans. In some cases, non-profits may be able to purchase a home before it is foreclosed upon and then lease it back to the homeowner, applying their lease payments to the purchase of the home.

The national Hope Hotline is a joint project between NeighborWorks America, a non-profit organization chartered by Congress, and the Homeownership Preservation Foundation, a non-profit organization based in Minnesota. The NC Commissioner of Banks and NC Attorney General Cooper are working together to select and support more than 20 high-quality counseling agencies across the state to accept referrals from the national Hope Hotline. These local counselors will be able to provide assistance not currently available through the national hotline.

“Foreclosures are hurting families across our state and damaging our neighborhoods and communities,” said Cooper. “It’s in all of our interest to help homeowners find a way out of foreclosure when possible.”

More information about the hotline and the organizations involved is available at

For North Carolina homeowners who are unable to avoid foreclosure with help from the hotline, Chapter 13 bankruptcy may be an option.  To find out how Chapter 13 bankruptcy might help you protect your home from foreclosure, call our Hickory office at (828) 327-2240 or our Boone office at (828) 262-0500.