Bruce Clemmer thought he was making progress on his loan modification with Merrill Lynch, sending in payments during a nine-month trial period and working on a plan to reduce the principal balance on his Henderson home.
In October, Merrill Lynch started returning his $2,700 payments. Clemmer mailed the payments back by certified mail, only to have them returned again.
"It doesn’t make sense," said Clemmer, an educator with the school district. "They’re not willing to talk at all at this point. It sounds like they want to force me into foreclosure or short sale. They already got their money out of it."
Clemmer is one of thousands of Las Vegas homeowners who feel let down by the government’s Home Affordable Mortgage Program, or HAMP, which would have cut his mortgage by just $80 a month.
Maybe his best option is "strategic default," that is, stop paying the mortgage, like so many other homeowners across the country have done. Some people have remained in their homes for years without making a payment.
They’re flirting with financial disaster, said Paul Harris, president of Residential Capital Mortgage Corp. in Las Vegas.
A lot of people bought homes with a "blending mortgage," he said. They took out first and second mortgages to avoid a big down payment and monthly mortgage insurance premiums.
With housing depreciation, it’s safe to say that virtually 100 percent of those second mortgages have no equity value, Harris said. Many first mortgages are also "underwater," — that is, homeowners owe more on the mortgages than the homes are worth. So homeowners simply throw in the towel and walk away when the bank refuses to work with them.
They think bad times from the mortgage mess are behind them, not knowing that lenders can file deficiency judgments to reclaim losses on the loan. The first mortgage lender has six months to file.
"Most of the banks are so completely overwhelmed with foreclosures that I have not heard of one case of this happening, so the risk is not too great," Harris said. "However, the lender holding the second mortgage has six years to come after the homeowner. So these poor homeowners will walk away from their homes and destroy their credit in the process."
They may spend the next three or four years rebuilding their credit score and saving money for a down payment on their next homes. Then out of the blue they’re served with a judgment for $60,000, $80,000, $120,000 or more from a collection company that purchased the bad debt for pennies on the dollar from the original lender, Harris said.
David Brownell of Keller Williams Realty in Las Vegas said two of his clients received some unexpected good news from their lenders. At the time of their approved short sales, the first-lien holders would not waive the deficiency.
"The lender was announcing in the letter that they were not going to pursue the deficiency, that they were releasing the client from all future claims," Brownell said. "Why is this happening? Single-action state? Lender receiving economic incentive for doing so? I don’t know."
Brian Blume tried to modify terms on a $392,000 mortgage with Deutsche Bank when his commercial real estate business went south in 2008. They wouldn’t talk to him because he hadn’t missed a payment, so he stopped.
Blume offered a deed in lieu of foreclosure, but the bank wouldn’t take it. He filed for bankruptcy on the day of the trustee sale to stop the sale.
"They wouldn’t get my house appraised. They wouldn’t accept offers for a short sale," Blume said. "They filed a motion to lift the stay in court and I asked them to show me the (mortgage) note as required under Nevada law. You have a right to inspect the original note. They delivered an affidavit of the lost note that basically says, ‘Trust us. We don’t know where the note is, but we didn’t transfer it to anybody.’
"The more I looked, the more errors I found regarding the default and sale process. Assignments were made incorrectly," he said. "And I began to realize the penalties for violations of the foreclosure process could mean the note could be voidable."
The stay was lifted and Deutsche Bank was allowed to proceed with foreclosure, though Blume said he’s still fighting the case.
Betty Chan, a Realtor serving the Asian-American community, said she was proactive in working with her lender before deciding to strategically default in early 2009. She tried to modify her loan with Indy Mac for more than a year before the bank failed and was taken over by One West Bank.
"They dragged and dragged, packages after packages, like many stories that we heard every day," Chan said. "They did not give any answer. Until about late 2010, they told me to do a short sale. I never wanted to get rid of my house, but I have no choice, so I went along with them."
Instead of responding to a short sale, the bank set a foreclosure date, she said. Her attorney filed a motion for temporary injunction, which was issued when bank representatives did not show up in court.
"Believe it or not, they went ahead to foreclose anyway," Chan said. "In other words, even a court order could not stop them. They acted in such bad faith without any consideration that having a foreclosure on my record (would) not just seriously hurt me mentally, but might cause future career damages to me."
Clemmer of Henderson said he’d be willing to stay in his home for another five to seven years if Merrill Lynch would work with him on reducing the principal. The way the loan is structured now, he’ll never have equity in the home, which was purchased in 2005 for about $500,000. A home on the same block recently sold for $190,000 in a short sale.
"In the long run, if they (banks) don’t support the consumer, they’re not going to stay in business," Clemmer said. "They want to take everything off the top and not let anything trickle down."
A call to Merrill Lynch in Las Vegas "could not be completed as dialed." A spokeswoman for Bank of America, which acquired the wealth management division of Merrill Lynch, said she could not locate Clemmer’s loan.
Bank of America announced in March that it would continue to expand outreach programs to help financially distressed homeowners in the hardest-hit regions. The bank opened three new customer assistance centers in Nevada last year and two centers in Seattle and Chicago this year.
"Our efforts to keep financially distressed customers in their homes have resulted in nearly 800,000 loan modifications in the last three years, but the exceptional severity and length of this economic crisis leaves us with much more work to do," Rebecca Mairone, national mortgage outreach executive, said in a company statement.
Contact reporter Hubble Smith at firstname.lastname@example.org or 702-383-0491.