The Law Office of J. Patrick Sutton

Another tack by lenders to avoid Section 50 liability: pretend the modification never happened!

I've gotten a spate of phone calls from borrowers who entered into agreements to modify their Texas home equity loans but have recently been told by their lenders that either (1) the modification was never completed, or (2) the lender is simply canceling the modification. In every case, the borrower made payments under the modification agreement, and the lender accepted the payments. In some cases, the modification agreements were without doubt formally executed by both parties. I take this as a sign that the lenders are now trying to cut down the sizes of the classes in the cases we've brought by declaring that many modifications never happened. Good luck with that.Content may continue . . .

You call this principal forgiveness?

Under the 2012 settlement between the federal government and 49 states, on the one hand, and the major home loan servicers, on the other, the big servicers agreed to give principal reductions to borrowers. How do they do it? Well, in the case of one of the biggest servicers, I reviewed a loan file where the servicer took past-due interest and other charges totaling tens of thousands of dollars, added it back into the loan as NEW principal, then "forgave" that "principal." The servicer then stated it was reporting the principal forgiveness to the IRS on behalf of the borrower since the principal forgiveness amounts to income for the borrower! A redacted copy of that document is HERE. An important point to note in this example is that the lender had previously added past-due interest and other charges into the loan, so this new modification was piling additional increments onto principal on top of what had already been added previously.Content may continue . . .

Home Equity Modifications that are interest-only

I've recently been seeing modifications of Texas home equity loans that recite an interest-only schedule of payments, usually for 1-5 years. The Texas Constitution, at Article 16 Section 50(a)(6)(L), in my view, makes such modifications illegal. That law provides that a Texas home equity loan must be paid in substantially equal installments that pay all accrued interest as of each payment date. The accompanying interpretive regulations make clear that some principal must also be paid, or else the loan isn't amortizing -- i.e., principal isn't getting paid down. If a modification of a Texas home equity loan recites a schedule of payments without principal -- even for a month -- it isn't amortizing, and the borrower has a strong legal case that the lien is invalid. Content may continue . . .

Pennington v. Wells Fargo goes to the U.S. Court of Appeals

The Pennington v. Wells Fargo proposed class action claims that a lender can't lower a Texas home equity borrower's monthly payments without forgiving the arrears that build up, since doing so creates a pool of unpaid interest that can't be added back into the loan (which is what happened in the other class actions I have filed, where the borrowers indisputably got "modifications" that increased the Texas home equity loan principal). In Pennington, the plaintiffs got temporary payment plans (HAMP program agreements), but the Plaintiffs assert that when Wells Fargo finally figured out that the interest arrears caused by the HAMP payment plans couldn't legally be added back into the loan without a Texas Const. Art. XVI Section 50(a)(6) refinance, Wells Fargo didn't forgive the arrears it had created with the reduced payments, as it should have done: it just cut the plaintiffs off from a permanent modification and demanded they catch up immediately. Thus, having drawn the plaintiffs into arrears that could never have been added back into the loan because of the way Section 50 works, Wells Fargo set the plaintiffs up for foreclosure, Plaintiffs allege.

Oral argument is scheduled in New Orleans with the Fifth Circuit U.S. Court of Appeals on September 5, 2012.

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JPMorgan Chase (Chase Home Finance) and Bank of America Proposed Class Actions

I have filed class actions on behalf of Texas home equity borrowers against both JPMorgan Chase Bank, N.A., successor to Chase Home Finance, and also Bank of America, N.A..

These class actions are identical to the Nationstar class action. They involve the claim that JPMC changed Texas home equity loans into interest-only and balloon-note loans, which the Texas Constitution forbids.

The Chase complaint as filed in the U.S. District Court for the Western District of Texas is here.

The Bank of America complaint as filed in the U.S. District Court for the Southern District of Texas is here.Content may continue . . .

Judicial Foreclosure of Illegally-Modified Home Equity Loans

If you have a Texas home equity loan that was illegally modified to include interest-only payments or a balloon, CONTACT ME IMMEDIATELY TO DISCUSS IT.Content may continue . . .

About the Pennington v. Wells Fargo Class Action

My Pennington v. Wells Fargo class action in federal court in Austin, Texas, concerns MODIFICATIONS TO TEXAS HOME EQUITY LOANS that MAY VIOLATE THE TEXAS CONSTITUTION in the following ways:
  • past due interest was included in a new principal amount
  • the modified loan exceeded 80% of the fair market value of the home.
Contact me IMMEDIATELY if you have such a situation, even if it's not with Wells Fargo.
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The Law Office of J. Patrick Sutton