Yesterday, DC Attorney General Karl Racine announced that the District has joined 42 states in a $6 million settlement with the nation’s largest debt buyer and collector — Encore Capital Group, Inc. and its subsidiaries, Midland Credit Management, Inc. and Midland Funding, LLC — in order to resolve claims involving the company’s use of illegal tactics to collect on unverified debts. Read more →

The DC Housing Finance Agency recently announced the reopening of its HomeSaver foreclosure prevention program — funded by the U.S. Treasury Department’s Hardest-Hit Fund — which can provide substantial mortgage assistance to distressed homeowners under limited circumstances. The program focuses on homeowners who are actively receiving unemployment benefits, newly re-employed homeowners who have received unemployment benefits within the last six months, and homeowners who have experienced an involuntary reduction in income of 25 percent or more.

The HomeSaver program, described in more detail in yesterday’s article in The Washington Post and at https://www.homesaverdc.org/, can provide assistance in the form of a lump sum payment to cure mortgage arrears and keep District residents in their homes. Read more →

Distressed homeowners who have completed short sales and worried about the looming tax consequences of cancelled or forgiven mortgage debt are one step closer to meaningful relief.

Late Tuesday, the Senate passed a bill retroactively extending the Mortgage Forgiveness Debt Relief Act through the year 2014 – meaning that homeowners of underwater properties (i.e., those owing more on their homes than the homes are currently worth) whose lenders have cancelled or forgiven debt as part of a short sale or similar transaction on their principal residence will not be penalized with tax liability. Read more →

Updated May 13, 2014: Jen has published an article about these developments in the D.C. Bar Blog.

“Come to court, no matter what.” That is the overall message now being communicated to struggling homeowners via a new court notice accompanying all complaints to foreclose in the District. Effective immediately, homeowners who have been sued for foreclosure in D.C. Superior Court will be able to come to their first court date and request early mediation to try to resolve their case through a loan workout or other agreement, even if they have not yet filed an answer to the complaint.

This improved system is the result of a collaborative effort by Legal Aid, along with other advocates, and the Court to address the growing number of judicial foreclosure cases filed in the District. Outreach to homeowners and early, court-sponsored mediation at the outset of every case are only some of the components of a larger set of new foreclosure procedures that provide important protections for homeowners. Read more →

Jen Ngai Lavallee, Staff Attorney

Last Thursday, June 28, Legal Aid testified before the D.C. Council Committee on Public Services and Consumer Affairs about the Saving D.C. Homes from Foreclosure Act and proposed legislative amendments.  The Act, initially passed as emergency legislation in the fall of 2010, requires lenders to offer mediation to distressed homeowners prior to moving forward with foreclosure.  Legal Aid testified in support of the mediation program and urged the Council to preserve, if not strengthen, certain provisions that Legal Aid argued are critical to the effectiveness and long-term success of the program — such as the requirements that lenders provide documentation of their standing and mediate in good faith.  Legal Aid also recommended that the Council use the current draft bill as an opportunity to improve the program by adding a mechanism for post-mediation judicial review, which would provide increased fairness and finality of the process to all parties involved.  Legal Aid’s written testimony can be accessed here.

Jen Ngai Lavallee, Staff Attorney

In recent weeks, the public discourse surrounding the foreclosure crisis has shifted away from Wall Street and the lending industry’s bad acts, focusing instead on homeowners’ supposed “windfalls” as they stop paying their mortgages sometimes for months or years.  Presenting the foreclosure crisis through such a distorted lens is a disservice to all homeowners.  It creates artificially sharp divisions between those who are paying and those who aren’t, ignores the extraordinary hardships that caused so many homeowners to fall behind, and perhaps most importantly, deflects attention away from the financial institutions that not only bear significant responsibility for creating the mess in the first place, but also possess the greatest ability fix it.  Interestingly, nobody seems to talk about one of the reasons many homeowners in foreclosure aren’t paying – their banks won’t take their money.

In today’s blog entry, we feature three Legal Aid foreclosure clients whose ultimate goals and requests to their lenders were simple: let me pay so I can stay in my home.  In each case, it was the lender who created a barrier to payment and resolution – and only with extreme homeowner persistence, combined with significant advocacy and escalation efforts, did each homeowner ultimately prevail. Each of the clients’ names below has been changed to protect their identity.

     1.     Bank insists on dealing with deceased borrower

Ms. Burns lost a major income source, causing her to fall behind on her mortgage.  When she attempted to start making payments again a few months later, the bank sent the money back and informed her that it was moving forward with foreclosure.  A housing counselor tried to help Ms. Burns, but was blocked by the bank, which refused to speak with the counselor or Ms. Burns about the loan.  According to the bank, the only person with whom it could discuss the loan was Ms. Burns’s deceased husband, who had passed away ten years before.  The bank maintained its position even though Ms. Burns was the sole owner of the property and the bank had been taking her mortgage payments for a decade.  Upon taking the case, Legal Aid escalated the issue to bank supervisors, complained to local and federal regulatory authorities, and raised the issue with the bank’s foreclosure attorney.  The bank finally relented by allowing Ms. Burns to apply for a loan modification on behalf of her late husband’s estate.  She successfully completed a trial modification plan, obtained a permanent modification of her mortgage, and is now current with her payments and stable in her home.  (Case start to finish time: 12 months.)

2.      Send it again

Ms. Taylor, an elderly schoolteacher who had lost work hours due to medical disabilities, sought hardship assistance from her bank, and with Legal Aid’s help, was ultimately able to qualify for a permanent loan modification.  Her interest rate was reduced and she made her new mortgage payments on time each month.  However, as the months went by, Ms. Taylor continued to receive correspondence from the bank indicating that she was still in default and at risk of foreclosure.  For the first few months, the bank insisted that Ms. Taylor merely needed to continue waiting until its computer systems were updated to reflect the terms of the modification.  However, four months after Ms. Taylor signed the permanent modification agreement, a bank representative informed her that there had been a problem with the modification documents and she must go through the entire process again.  Legal Aid escalated the issue and demanded more information regarding the problematic documentation.  The bank eventually revealed that the modification documents were illegible – not due to any fault of Ms. Taylor, who had signed the bank’s documents and sent back the originals as required, but rather due to the bank’s illegible scanning of the documents and failure to retain the originals.  Legal Aid immediately provided the bank with a clear, duplicate copy, and the bank proceeded to finalize the modification that had previously come so close to falling apart.  How smoothly this process would have worked without the benefit of counsel is anyone’s guess. (Case start to finish time: 13 months.)

     3.      Just tell me how much to pay

Mr. Diaz came to Legal Aid with an imminent foreclosure sale of his home, which threatened to leave him and seven of his family members homeless.  The total remaining balance on the mortgage was relatively low, but with a sale date drawing near the bank would only accept payment of the full amount owed on the loan plus interest, fees and costs. Mr. Diaz did not have the money the bank was demanding at that time.  Legal Aid investigated and questioned the bank’s authority to foreclose on the home, ultimately resulting in cancellation of the sale.  Months later, Mr. Diaz’s financial situation changed such that he could pay off the entire remaining balance on the mortgage.  He desperately wanted to do so, so that he would never have to face a potential foreclosure again.  However, the bank then stated it was unable to tell Mr. Diaz how much to pay because he was not the named borrower on the mortgage, even though he owned the home and had been making the mortgage payments for years.  Mr. Diaz explained that the named borrower on the loan had gone missing years ago, that it would be impossible to locate him, and that all he wanted to do was pay the bank the entire remaining balance on the loan.  The bank would not budge.  Only after several months and significant escalations by Legal Aid did the bank ultimately relent and agree to provide the payoff figure.  Mr. Diaz promptly paid his entire remaining balance and now owns his home free and clear of any mortgages.  (Case start to finish time: 15 months.)

Legal Aid congratulates these clients on their persistence and thanks them for helping to share a much different perspective on the foreclosure crisis.

Jen Ngai Lavellee, Staff Attorney

As a result of Legal Aid’s advocacy, a plaintiff debt collector recently agreed to dismiss a case against one of our clients that sought in excess of $10,000 in alleged debt, fees, and interest from credit card charges she allegedly made many years prior.

Ms. B came to Legal Aid because she had been sued for over $10,000 by a company that she did not recognize. The complaint stated that the lawsuit was based on her nonpayment of an old credit card debt and sought to collect that balance plus interest and attorney’s fees. Ms. B did not dispute having owned the credit card at issue, and she admitted that she had fallen behind on her payments several years ago after suffering a stroke. But she was not sure of the actual balance on the account, nor did she did not recognize the plaintiff as the same company that had issued the credit card to her decades ago. Because Ms. B’s only sources of income were social security and her small pension, she could not afford to pay anything on the debt. Ms. B. came to Legal Aid fearful of what would happen to her as a result of the lawsuit.

Legal Aid entered the case and asked the plaintiff — a debt-buyer company that purchases bad debts — for proof that it was the owner of Ms. B’s credit card account. In response, the plaintiff produced a series of documents intended to show that Ms. B’s credit card debt had been assigned or sold three different times in order to get from the original creditor to the plaintiff. However, the documentation did not identify Ms. B’s account, but instead showed only that hundreds or thousands of unidentified accounts were sold at once. It also contained dates that did not make sense with the alleged chronology of sales, and the plaintiff refused to include any of the actual assignment agreements.

Legal Aid argued to the Court that the problems with plaintiff’s documentation showed that it could not in fact prove it was the true owner of Ms. B’s credit card account and therefore lacked the legal standing to sue her on the debt. Legal Aid explained that ownership of the account was a critical issue, because if Ms. B paid the plaintiff to settle or otherwise satisfy the debt and a different company revealed itself as the true owner, Ms. B would suffer duplicate liability on the same debt. Legal Aid argued that allowing the plaintiff to move forward with the case and try to recover from Ms. B under the circumstances would be both unfair and legally incorrect.

At a pre-trial hearing before the judge, Legal Aid stressed in particular that the plaintiff’s documents presented serious reliability issues and that the plaintiff would not be able to present sufficient evidence at trial to prove its case. Both parties and the judge agreed that a decision in the case could have a significant impact on the standards of proof required of debt-buyer companies in the District of Columbia. After oral arguments in front of the judge were complete, the plaintiff opted to dismiss the case against Ms. B rather than proceed to trial, and it promised never to sue her on the same debt again.

Jen Ngai Lavallee, Staff Attorney

Over the last couple of years, thousands of homeowners facing the threat of foreclosure have been trying to get loan modifications through the federal government’s Home Affordable Modification Program (“HAMP”). Numerous articles have highlighted some of the problems involving bank compliance with program guidelines. But a recent report published by Pro Publica indicates that, in addition to compliance issues at the servicer bank level, the lack of government enforcement and oversight of the program has also significantly limited HAMP’s effectiveness. The Pro Publica report summarizes findings regarding the quality of HAMP enforcement by Treasury and Freddie Mac against major banks, concluding that one of the main reasons the administration’s flagship foreclosure prevention program has been largely ineffective in helping homeowners get loan modifications is that “[t]he government’s supervision of the program has apparently ranged from nonexistent to weak.”

While bank non-compliance and ineffective oversight of the government’s loan modification program affect all struggling homeowners, the impact of these problems is significantly magnified when it comes to low-income homeowners, who often have limited or no access to internet, fax machines, phones, and copiers—many or all of which are necessary resources in the “paper chase” that has come to define the loan modification application process. Low-income homeowners are also among the most likely to become homeless after foreclosure.  On the flip side, when loan modification does work, it can have an enormous positive impact on the stability and livelihood of families living on the edge of poverty.

The experience of Legal Aid client, Ms. L, demonstrates both the hurdles that loan modification applicants face, as well as the enormous difference that a successful modification can have on the lives of those living in or near the brink of poverty. Ms. L came to Legal Aid fearful that she was about to lose her home of 21 years. After her mother had moved out and was unable to continue contributing to the household expenses, Ms. L fell behind on the mortgage and struggled to make ends meet for the four children she cared for on her own, including one child with permanent and severe disabilities.  She had tried to apply for a loan modification, but her bank had provided her with false information regarding her eligibility and blocked the review from moving forward.

Legal Aid reviewed Ms. L’s financial situation, which indicated that she was likely to qualify for a loan modification, and re-submitted a new application for loan modification on her behalf.  The bank again denied the application, however, claiming that Ms. L’s income was insufficient to support her mortgage even with a reduced interest rate. After investigating the matter further, Legal Aid determined that the bank had failed to count approximately $300 in food stamps as part of Ms. L’s income—even though loan modification program guidelines clearly indicated that food stamps were to be counted—and that the exclusion of Ms. L’s food stamp income was the determining factor in the denial of her application. When the bank persisted in refusing to count the food stamps, claiming that investor guidelines prohibited their inclusion, Legal Aid escalated the matter to the Fair Housing Administration, the U.S. Department of Housing and Urban Development, and the HAMP escalations team, highlighting the bank’s failure to comply with applicable program guidelines and arguing that a failure to count public assistance income under these circumstances was a violation of the Equal Credit Opportunity Act.

Despite Ms. L’s apparent eligibility and Legal Aid’s multiple attempts to get the attention of bank supervisors and government regulators with authority to review the situation, it took months of back and forth to obtain and complete a successful trial modification plan. Shortly thereafter, Ms. L finally obtained a permanent loan modification involving a reduction in her interest rate by more than two percent and the transfer of a portion of her loan balance to a no-interest subordinate loan with the Fair Housing Administration. Ms. L is now current on her mortgage and stable in her family home. Legal Aid congratulates Ms. L on obtaining her modification and for her tenacity in continuing with her foreclosure prevention efforts despite the multiple barriers the bank placed in her way.

While Ms. L was ultimately able to obtain a loan modification and stay in her home, thousands of other homeowners—including many low-income homeowners—continue to struggle.  Legal Aid is committed to continuing its advocacy on behalf of low-income DC homeowners facing foreclosure and to increase access to justice for those who need it most.

Jen Ngai Lavelle, Staff Attorney

Since the launch of its Consumer Law Unit in 2008, Legal Aid has worked to help many low-income DC homeowners avoid foreclosure by litigating mortgage-related fraud cases, negotiating loan modifications, and conducting community outreach and education. With a rising number of foreclosures devastating individuals, families, and neighborhoods across the country, the gravity of the current foreclosure crisis and the importance of keeping people in their homes is easy to see. But according to new research findings, the link between foreclosure and well-being may be much broader and more far-reaching than meets the eye. This study, conducted by Janet Currie of Princeton University and Erdal Tekin of Georgia State University and described in the Wall Street Journal, looks beyond economic well-being and draws the connection between health problems and the increase in foreclosures in some of the hardest hit areas of the United States.

Jen Ngai Lavelle, Staff Attorney

After enduring a multi-stage battle in a consumer case to which she should have never been a party, Legal Aid client Tangela Garnett finally prevailed in her fight against a company collecting on debt she simply did not owe.

In the fall of 2010, Ms. Garnett was shocked to learn from her employer that over $300 was being taken out of her paycheck every two weeks to pay a court judgment of approximately $3,000. Unaware of any such judgment against her, Ms. Garnett immediately went to the court clerk’s office to investigate. It was there she learned for the first time that in 2003, a debt collector had sued her on an alleged unpaid credit card debt — and that when she did not appear in court, a default judgment had been entered against her. Now, eight years later, the debt collector was garnishing her wages to collect on the amount of the judgment.

Ms. Garnett had never heard of the lawsuit. She had never been served, and the person described in the plaintiff’s affidavit of service did not match her description or that of anyone who would have been able to accept service on her behalf. Nor had she ever received any notice of the initial court date or entry of the judgment. Perhaps most unsettling was that she did not recognize the underlying credit card debt — the debt was not hers.

Ms. Garnett filed a motion to vacate the judgment and stop the garnishment, but the motion was denied. Legal Aid entered its appearance and moved for reconsideration, but the judge again denied the motion. While this was ongoing, Ms. Garnett continued to watch money being taken out of her paycheck — money that she normally relied on to pay for her housing, food, and other necessary expenses.

But Ms. Garnett and her Legal Aid attorney did not give up. They requested yet an additional level of review and ultimately prevailed, this time with the judge issuing an order vacating the 2003 judgment and remanding the case for a new trial. According to the judge’s order, the plaintiff debt collector had failed to provide sufficient proof of the underlying debt when it offered no documentation other than a self-serving affidavit of one of its own employees stating that Ms. Garnett owed the collection company the amount of money stated in the complaint. Therefore, ruled the judge, the judgment that the court had previously entered against Ms. Garnett — and that formed the basis of the wage garnishment — was invalid.

Ms. Garnett’s case was resolved prior to trial, when the plaintiff provided her a refund of the full amount garnished from her pay and dismissed all claims against her with prejudice. She now receives her entire paycheck every two weeks, and the debt collector cannot bring a new action against her based on the same debt.

 Legal Aid congratulates Ms. Garnett for her tenacity and her individual victory in this case, but it also recognizes there are countless other District residents who have been victims of what are at best, sloppy — and at worst, abusive — collections practices. Legal Aid will continue to fight on their behalf through litigation and advocacy to ensure that their rights are protected and interests are represented.