The Weird World Of Economics

Bundled Mortgages and Dubious Fees Complicate Foreclosure Cases

When Ohioans head to the polls Tuesday to vote in one of the nation’s most scrutinized presidential primaries, Mark and Gina Wellman of Circleville, Ohio, will be watching another vote — what buyers are bidding for the house they built themselves when it goes on the sheriff’s auction block.

The auction is scheduled, even though the lender forcing the sale was not the owner of the note underlying the mortgage when the lender began foreclosure proceedings in 2002.

The Wellmans may lose their home even though their accountant testified to the court in 2006 that the lender had levied improper charges on the borrower of about $40,000, or almost 13 percent of what the bank said the Wellmans owed at the time.

Every home foreclosure is different, of course. But the Wellmans’ case shows the uphill battle facing many troubled borrowers who believe that they are losing their homes for questionable reasons, like onerous fees.

One problem is ascertaining who actually owns the note underlying each home loan. This seemingly simple task has turned difficult as more home mortgages have been packaged by the thousands into securitization trusts.

Katherine M. Porter, an associate professor of law at the University of Iowa, conducted a recent study of 1,733 foreclosures that began in 2006. The study found that 40 percent of creditors foreclosing on borrowers did not show proof of ownership, what is often called “proper assignment” of the note or security interest in the property.

Dubious fees charged by lenders have also emerged as a rising problem. Ms. Porter’s study found that questionable fees had been added to almost half of the loans she examined. Last year, the United States Trustee, charged with overseeing the integrity of the nation’s bankruptcy courts, said it would move against lenders that file false or inaccurate claims or assess unreasonable fees.

The Wellmans are not suffering alone. Ohio’s foreclosure rate is the sixth highest in the nation, according to RealtyTrac, with 1.8 percent of the state’s households in some stage of foreclosure in 2007. Total foreclosure filings in Ohio reached 153,196 last year, an increase of almost 90 percent over 2006, RealtyTrac said.

Homeowners naturally look to judges to stop banks and mortgage lenders from seizing troubled borrowers’ homes without supplying proof that they actually owned the note when they began foreclosure proceedings. And with foreclosures soaring, some judges are sympathetic.

Courts in Ohio have recently dismissed cases where ownership of the note underlying the mortgage has not been proved by lenders seeking foreclosure. Last October, Christopher A. Boyko, a federal judge in Cleveland, dismissed 14 such cases.

Judge Boyko wrote: “There is no doubt every decision made by a financial institution in the foreclosure process is driven by money. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional requirements and more about maximizing returns.” Judge Boyko left open the possibility that the lenders could refile.

But P. Randall Knece, the judge overseeing the Wellmans’ case in Pickaway County, has refused to stop the auction, even though ownership of the note at the time of foreclosure was not assigned to National City Mortgage, which is forcing the sale.

The lender, a unit of the National City Corporation of Cleveland, was cited for failure to comply with rules on loan origination and quality control and agreed to change some practices.

Mr. Wellman, 51, is a former truck driver who has lived on the same road all his life. He said the 11-year battle to keep his home had taken over his existence.

“It feels like you got knocked down in a hole and you’re handcuffed and you work your way up to the top and there is someone there to kick you back down,” he said.

The Wellmans first got into trouble on their mortgage in 1996 after Mr. Wellman lost his job. Since then, as many desperate borrowers do, the Wellmans filed for bankruptcy to try to keep their home from being auctioned. They have filed five times.

Mrs. Wellman works at a Gap Inc. warehouse nearby; Mr. Wellman has designed a heat pump that he said he was trying to patent. They made payments on their mortgage until 2004.

Mr. Wellman said he built the brick home himself. He started it in 1990 on a two-acre plot and finished it two years later.

Over the years, National City has agreed on several occasions to give the Wellmans more time to make up for late payments.

Kristen Baird Adams, a spokeswoman for the bank, said that it tried to work with the Wellmans but had exhausted all possible remedies. She also said that the bank was pleased that the judge overseeing the case ruled for National City allowing the foreclosure to proceed.

The Wellmans appear to have equity in their home, even after including the bank’s charges. The local tax assessor recently valued the home at around $375,000, which is $30,000 more than the amount the bank said was owed on the mortgage, including late fees, interest and other charges.

In March 2002, National City filed foreclosure papers against the Wellmans. But in subsequent court filings, lawyers for National City acknowledged that it had not been assigned proper ownership of the note at that time.

The lender had taken over the assignment after it filed foreclosure, and when challenged by the Wellmans’ lawyer on its legal standing to sue for foreclosure stated: “The late filing of the assignment does not affect the validity of the mortgage, nor the plaintiff’s interest, and as such, has no effect upon the defendants.”

National City’s spokeswoman said that it viewed the Wellman case as different from those in Judge Boyko’s ruling.

Allegations of questionable fees levied by lenders, like those claimed by the Wellmans against National City, have also begun cropping up in courts nationwide.

In 2003, the Wellmans signed a forbearance agreement with National City. In it they agreed with the bank on the amount it said they owed. But in 2004, Mr. Wellman said he suspected the bank had overcharged him and he asked for an accounting of what he had paid on his loan.

Plugging the bank’s figures into a Quicken program confirmed his fears, he said. A local accountant, Steve Helwagen, scrutinized the bank’s numbers and testified to the court that National City’s accounting was off by $38,612 in its favor. Mr. Wellman stopped paying on the mortgage and hired a lawyer to try to recover those fees from the bank.

Included in the questionable charges, Mr. Helwagen said, were bank attorney fees, foreclosure fees and those covering hazard insurance. “The bank’s records were horrendous, they just jumped all over the place,” he said. “I’ve never seen anything like it in my life.”

Ms. Baird Adams said that National City Mortgage had done a thorough analysis of the charges on the Wellman loan and found them to be accurate. And Judge Knece found that the Wellmans were bound by the agreement they signed in 2003.

Roy Huffer, a lawyer in Circleville representing the Wellmans, said that both the trial court and appellate court have ignored the Wellmans’ allegations of problems in National City’s charges and its ownership of the note.

Having worked on the Wellman case for more than three years without pay, he said he laughed at a mass mailing last month from the Ohio Supreme Court, sent to all active lawyers in the state, asking them to represent, pro bono, borrowers in foreclosures. “That’s what I have been doing on this case for the past three years,” he said.

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posted by UncommonBusiness @ 2:03 AM