Fight Back Against Mortgage Servicers

Mortgage servicer PHH Mortgage Corporation is in the news again, this time on the losing end of a $16 million jury verdict. Like many others in Yuba County, California, homeowner Phillip Linza ran into some financial trouble after purchasing his home in 2006. Linza filed bankruptcy in 2009, then worked with PHH for a home loan modification. According to Linza’s attorney, PHH agreed to a loan modification that reduced Linza’s monthly payments from $2,100 to $1,543, which would take effect in January 2011.

Inexplicably, PHH changed the terms. PHH first told Linza his new payment was $2,350 per month, then demanded an extra $7,056. When Linza complained and threatened litigation, he was told, “We’re a multi-billion dollar company. Stand in line because we’ve got a busload of attorneys that are on retainers.”

This is not the first time PHH has been in the news. In January, 2014, the Consumer Financial Protection Bureau initiated an administrative proceeding, alleging PHH harmed consumers through a mortgage insurance kickback scheme that started as early as 1995. The CFPB is seeking a civil fine, a permanent injunction to prevent future violations, and victim restitution.

In December, 2013, the New Jersey Attorney General announced a $6.25 million settlement with PHH to resolve allegations that the company misled financially struggling homeowners who sought loan modifications or other help to avoid mortgage delinquency or foreclosure.

In 2011, PHH was hit with a $20 million jury verdict from a Georgia federal court for improperly reporting U.S. Army sergeant David Brash to credit agencies as “seriously delinquent” despite the fact that all his mortgage payments had been automatically deducted from his paycheck. When he tried to resolve the matter, his letters to PHH went unanswered (violating federal law) and his calls were routed to overseas customer services staff who couldn’t answer his questions.

When a mortgage servicer will not play fair, there are few options. Litigation is costly and time-consuming, and also carries some risk since not every consumer lawsuit is successful. For many consumers, the power found in the federal bankruptcy laws is a more certain and permanent option. Most jurisdictions allow a bankruptcy debtor to strip away an unsecured junior lien against a home in a Chapter 13 case. A mortgage arrears may be repaid over three to five years under court supervision, and without threat of an unannounced foreclosure.

A Chapter 7 debtor may discharge a personal obligation on a home loan while retaining the right to modify post-discharge under HAMP. That means that the lender has no recourse against the homeowner for nonpayment, and the property is eligible for loan modification.

If you are experiencing the pains of dealing with an incompetent or dishonest servicing company, consider all of your options, including options found in the federal bankruptcy laws. Bankruptcy is not always the best option, but it is often the most powerful option.