Some Borrowers In Foreclosure May Be Losing Homes Unnecessarily

Posted on November 9th, 2007 by saman

Bankruptcy specialists are saying the some homeowners who are being foreclosed are losing their homes due to questionable lender practices and that some firms who instigate home foreclosures may be doing so knowingly. These disturbing disclosures are said to be ‘coming to light’ during bankruptcy proceedings.

The same bankruptcy specialists have also reported that some lenders and loan servicing organizations frequently fail to comply with the most basic requirements of the laws governing lending such as accurately portraying how much is owed on the loanor providing evidence that they even hold the loan. Furthermore, a Law Professor at the University of Iowa has urged regulators to consider just how loan service organizations calculations and collection methods have left homeowners wide open to foreclosure.

The same Professor has said that an analysis of Chapter 13 bankruptcies, an option that is supposed to help troubled homeowners, showed that questionable fees had been added on to nearly 50% of the loans she personally examined and that many other charges were extremely vague. She added that most of these fees were small but together could have produced millions of dollars for loan servicers at a time when mortgage originations were in trouble.

The questionable practices in use by loan servicing organizations have prompted the office of the United States Trustee who is responsible for monitoring the bankruptcy system for the U.S. Justice Department, to announce that it plans to take steps against mortgage servicers who file fail to properly account for loan payments or file false and misleading claims or assess unreasonable fees after a bankruptcy action has been discharged by the Court.

Servicing mortgage loans is an extremely profitable business because servicers, who collect payments and forward them to investors usually receive a percentage of the loan. This amounts to ¼ of 1% on a prime mortgage and ½ of 1% on a sub prime loan. These organizations typically generate a 20% profit margin from their operations.

Other fees and charges that have added insult to injury for troubled homeowners include things like a $145 demand fee, $137 in overnight delivery fees, fax fees totaling $50 and $60 in payoff statement charges. Fees for property inspections can also be assessed along with still others for assessing the homes current value. One attorney in a southern state reported a case where his client filed Chapter 13 bankruptcy, made all his payments, got his discharge and 90 days later suddenly received a statement from the loan servicer for $7,000 in fees and charges incurred during bankruptcy that were never approved by the Court as required.

It seems clear that these revelations will undoubtedly further encourage new legislation not only to provide help for those facing near-term foreclosure, but to ensure that lenders in the future play square with both regulatory authorities and borrowers. In the interim, latest data shows that the foreclosure crisis is moving steadily forward and more American homeowners will continue to fall into default as the interest rates on adjustable rate mortgages start to reset.