Some are bringing lawsuits in hopes of forestalling losing their
homes or freeing themselves of what they believe are onerous borrowing
terms. Occasionally they take a do-it-yourself approach, using free
online legal documents to file their cases.
One common tactic is pressing to have mortgages "rescinded," which
allows consumers to cancel their loans if lenders violated the Truth in
Lending Act by failing to, among other things, clearly state loan costs
and terms.
"Right now we’ve got so many of these cases that we’re trying to be
extremely selective about who we take on," said Chicago lawyer Daniel
Harris, who is representing about 100 households in various mortgage
battles, many seeking rescissions.
The activity comes as more borrowers are in financial distress.
Foreclosure filings in the Chicago area have ballooned to nearly 58,000
in 2008, up 52 percent from 2007, according to the Woodstock Institute,
a Chicago-based economic development non-profit.
And it’s too early to determine the outcome of the government’s $75 billion housing recovery plan.
"It’ll be great if my clients can qualify and take advantage of the
terms," said Michelle Weinberg, supervisory attorney for the Legal
Assistance Foundation of Metropolitan Chicago. "At the end of the day
my clients are going to owe something, but they shouldn’t have to pay
11.5 percent." The plan’s details are expected to be announced by next
month.
Meanwhile, the Consumer Warning Network, a Web site that provides
free template legal documents, is getting about 20,000 hits a day. Its
most popular offerings include a document asking lenders to produce the
original note that proves a debt is owed.
The intent is to delay foreclosure in hopes of finding money to
make payments or to pressure the lender to negotiate. During the
lending boom, many mortgages were sold or packaged with other mortgages
and sold to Wall Street investors, so locating original notes isn’t
always easy.
Last month, Rep. Marcy Kaptur (D- Ohio) advocated the show-me-the-note tactic in a speech.
"When those companies say they have your mortgage, unless you have
a lawyer that can put his or her finger on that mortgage, you don’t
have that mortgage, and you are going to find they can’t find the paper
up there on Wall Street. So I say to the American people, be squatters
in your own homes."
Susie Landon of Chicago filed a suit on Dec. 31, asking to see the original note.
Landon, who also claims she is a victim of predatory lending, is
demanding that her lenders show her the original document in her
dispute, which includes a $328,204 loan for a home on South Troy
Street.
In her suit Landon cited an October 2007 opinion by a federal judge
in Ohio who dismissed 14 foreclosure cases because the plaintiff failed
to prove that it held and owned the note and mortgage.
"The institutions seemed to adopt the attitude that since they have
been doing this for so long, unchallenged, this practice equates with
legal compliance," Judge Christopher Boyko wrote. "Finally put to the
test, their weak legal arguments compel the court to stop them at the
gate."
Some experts, however, warn that the show-me-the-note strategy may only prolong the inevitable.
"You might be able to get a foreclosure dismissed because the
person who filed the lawsuit doesn’t have standing, but somebody owns
the note," Weinberg of the Legal Assistance Foundation said. "So even
if that case is dismissed, eventually they’ll figure it out."
Chicagoan Roy Shannon, 33, is taking the fight on himself. He used
the Internet to research how to craft the 10-page federal lawsuit he
filed against parties that include First Franklin Financial Corp., a
unit of Merrill Lynch, which is now owned by Bank of America Corp.
After he refinanced in 2007, Shannon said monthly payments on his
West 115th Street home shot up from about $800, including taxes and
insurance, to $1,228.
"That wasn’t what we agreed to," said the self-employed event promoter.
Shannon claims his loan application was fraudulent because his
income was overstated after he signed the document. He wants his 7.8
percent interest rate reduced.
A Reed Smith lawyer representing First Franklin could not be reached for comment.
Shannon recently received a letter from his lender saying he is
$3,100 past due on his mortgage and needs to pay by March 5 or risk
foreclosure proceedings.
"All these banks are getting bailed out, so they’re mismanaging the
funds and they’re getting all this interest still," Shannon said
Wednesday before President Barack Obama’s administration announced its
housing recovery program. "But the people who need to be bailed out
aren’t being bailed out."
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