A federal appeals court has foreclosed on one avenue for financially distressed homeowners to challenge lenders.
Banquet server Richard Gale defaulted on his home loan payments four years ago when paychecks from his various Strip employers started to shrink. He sent letters to First Franklin Loan Services asking it to rework the terms of his $250,000 mortgage and to find out which entity owned the loan at that point but never heard back.
In its ruling on Thursday, the Ninth U.S. Circuit Court of Appeals denied Gale’s bid to sue First Franklin, a subsidiary of Bank of America, under the Truth in Lending Act. Under its intricate interpretation of the act, the court excused First Franklin because it was the original lender and kept the servicing rights even though the loan was later resold. Many banks continue the collection work as a source of steady income even if they want certain loans off the books.
However, if a servicer attained the position through a legal assignment from another company, then it must tell homeowners who holds the loan.
The court designated the case as a published opinion, meaning that it sets a precedent for the lower courts to follow.
“We are not unsympathetic to the frustration that resulted from Franklin’s failure to respond to Gale’s inquiry regarding his home,” according to the opinion by the three-judge panel. “The service is often the only entity that the consumer is in contact with after the loan issues – unless the servicer is forthcoming, the homeowner may not know with whom to negotiate to stave off foreclosure … .”
So many thousands of Nevadans faced this situation that the state’s foreclosure mediation program requires lenders to physically produce documents showing loan ownership prior to foreclosure. Many experts have said that foreclosures have slowed in recent months because banks are trying to get their files in order.
At this point, Gale said, “I still don’t know who owns my loan. I’m just sort of in never-never land.”
He acknowledged that he has remained in his Las Vegas home but not made any mortgage payments in four years as the case proceeded both in federal and state courts. For reasons other than the loan ownership, Gale’s lenders were denied a certificate through the mediation program that would have allowed them to repossess his home at 7836 Faith Court.
Changes mandated by the Dodd-Frank banking overhaul law enacted in 2010 will require all servicers to disclose a loan’s ownership to a borrower. But it does not go into effect until January so the court did not apply it to Gale’s case.
Another law enacted since Gale filed his case, the Helping Families Save their Homes Act of 2009, requires a lender to send a written notice to a borrower within 30 days of taking over a loan.
The 9th Circuit ruling sent back to the trial court the question of whether Gale had faced an improper foreclosure under state law.
Contact reporter Tim O’Reiley at
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