Business Practices and Borrower Rights

Written By: Bonnie Wilt-Hild

I am going to share a story of very recent origin which involves someone quite close to me and unfortunately is entirely true. I am hoping that by sharing this, it will bring light to some of the seedier business practices occurring today while also making people aware that there is recourse against lenders who consistently leave behind ethical practices in favor for business practices that violate not only the law but also their client’s personal rights. This particular case involves the Bank of America, a loan modification and various degrees of deceptive and illegal business practices which I was informed was normal business practices for this institution.

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To begin, my friend who was in the process of a divorce had been waiting for her estranged spouse to have her name removed from the mortgage note which collateralized the marital home. In good faith, he contacted the servicer who was Bank of America, explained the situation to their representative while also asking if there was any way to have the monthly payment on the mortgage reduced as the payment was somewhat difficult for him to pay with the reduction in income due to the divorce. The BOA representative explained to him that he could complete a HAMP modification (the loan was an FHA loan) which would reduce his monthly payment by half while also releasing from liability his ex wife. When he explained this to my friend both were delighted that it would be so easy. Six months pasted and the modification/release of liability was still not complete and this is when my friend asked me for some assistance. In speaking to her estranged husband, he informed me that he had just xreceived the modification documents for a trail payment plan and much to his dismay, not only was his wife’s name still on the documentation but the monthly payment was almost identical to the monthly payment he was already paying. He informed me that he called BOA, explained again that it was a divorce situation and that his estranged wife was to be removed from the loan and they told him that all was fine, that she was removed and all they had to do was call the assumption department and they would confirm this. In the mean time, as part of this transaction, BOA had informed him that his estranged wife would need to execute a Quit Claim Deed removing her name from title prior to the consummation of the modification. This made sense as she was also being released from liability where the mortgage was concerned. Only thing left to do was call the assumption department and obtain the release of liability and this is where the trouble began.

Upon contacting the assumption department she was informed that no release of liability was forth coming as the modification only modified the terms of the existing note but in no way released her of liability. Further her name had been included on the modification request without her consent. Upon learning this, I contacted BOA and spoke to approximately 4 mangers when it was all said and done and all informed me the same thing; In summary, the Quit Claim was requested so that BOA could circumvent collecting financial information from the co borrower (wife). In this manner the co borrower effectively Quit Claimed her interest in the real property jointly owned by she and her estranged husband with no recourse and was therefore no longer an owner of said property however she was still obligated for the debt. According to BOA by the execution of the Quit Claim, they were under no obligation to include her in any loss mitigation negotiation, nor provide any type of disclosure or release her from liability. Essentially everyone the altered a contract, under which she was obligated without her consent stating that once she Quit Claimed her interest, they were under no obligation to disclose her.

More disturbing, the method by which they required and obtained the Quit Claim was deceptive in that they stated that it was for the purpose of removing her from the loan. Further, by doing this they also excluded her from participation in loss mitigation processes which is a violation of HUD’s policy, this again because of the Quit Claim. My question is this, how does a loan servicer the size of BOA get away with altering a mortgage contract without interested parties consent and deceive someone into relinquishing their rights in collateral property while violating HUD’s loss mitigation policy and procedure. My next question is how many other borrowers have been treated this way. According to the three managers I spoke to, they do it on a regular basis. According to a contact I have at HUD, my friend should get an attorney because it’s unlawful to alter any contract with interested parties consent.

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In closing everyone, I will say that each manager I talked to was under the impression they were completely within their rights due to the execution of the Quit Claim. As I finally pointed out to a very nice gentlemen from the Office of the President and CEO, simply Quit Claiming your interest in real property to another individual does not in any way affect the mortgage contract or eliminate the burden of the servicing lender to provide the contractual borrowers with relevant disclosure and of course obtain their consent to alter the contract. Additionally, HUD requires that all borrower and co borrower information be obtain when a lender begins to engage in loss mitigation efforts and again, the Quit claim does not relieve them of that burden. As you can well image, the information has been provided to HUD’s NSC as well as OIG. The moral of the story is this, practice your business fairly and make sure you clearly understand any and all legal ramifications before you begin engaging your borrowers. As always, happy underwriting.


About The Author

Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.


Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.