Legal Disclaimer The writer, Andy Williams is NOT an attorney. The information contained in A Case against Litton Loans Servicing LP is for education purposes only and should not be considered as legal advice. The information in this book is written from the perspective of Andy Williams Jr. and hisfive years of research concerning industry mortgage servicing fraud and Litton Loans. Andy is a paralegal and an advocate protecting consumers against abusive lending and lenders.Andy has not attended law school and is not authorized to practice law in any state. The purpose of this book is to expose the criminal enterprise and income derived from mortgage servicing fraud. It is my hope that my research, knowledge and understanding will be utilized in providing a form of relief concerning foreclosures in America. The writer and publisher of this book shall not be liable for any special, consequential, or exemplary damages resulting in whole or in part from the readers use of, or reliance in this material. About Andy Williams Jr.Andy Williams Jr. is a Paralegal and Consumer Advocate who strives to educate and protect consumers against abusive lendingPrior to becoming a Paralegal, Andy worked in the mortgage industry for nine years. He was a mortgage broker with experience in originating, processing and closing conventional, sub-prime and FHA loans. He is skilled in analyzing client needs while recommending the appropriate loan products. In March of 2005, national home-mortgage giant Litton Loans Servicing LP and The Bank of New York, began foreclosure proceedings to take the suburban Chicago home*of Andy Williams and his family. Unlike your average consumer, however, Williams was the president of a mortgage brokerage firm. Williams, who is also a paralegal, decided to fight back. As he fought to keep his own home, he soon realized that he was being victimized by the kind of aggressive servicing tactics that are affecting homeowners nationwide. The mortgage company's foreclosure was based on their allegations that Williams had missed 3 payments. Williams sent his payment history in the form of bank drafts to prove there must be an error in the company's records, but the bank ignored the evidence and continued the foreclosure process. Seeing a pattern with his own experience, Williams researched Litton Loans and found he was far from the company's first ill-treated customer. The Federal Trade Commission has over 1,100 complaints filed against Litton which resulted in some payouts to borrowers; consumer affairs has several complaints, and there are websites that reports similar cases against Litton. www.rip-off-report.com . Andy is now an advocate determined to educate and help consumers currently facing foreclosure. Contact info: Andy Williams awilliams@ccanow.comwww.ccanow.com * Andy Williams Sr. was the purchaser of the home along with Andy Jr's wife. Andy Williams Jr. was responsible for making the payments. Table of Contents Introduction...........................................................................................................page 2 About Litton Loans Servicing LP.........................................................................page 4 Mortgage Servicing Fraud....................................................................................page 5 Misapplication of Payments.................................................................................page 7 Force Placed Insurance.........................................................................................page 7 Improper Fees.......................................................................................................page 7 Pooling and Servicing Agreement........................................................................page 8 Example of an Illegal Foreclosure........................................................................page 10 My Story/ Facts of the Case..................................................................................page 11 Legal Claims and Defenses...................................................................................page 14 Damages................................................................................................................page 19 The Participants and their roles.............................................................................page 19 Class Action against Litton...................................................................................page 22 Litton in the Press..................................................................................................page 27 Federal Trade Commission and Consumer Complaints........................................page 39 2005 Moodys Servicer Report.............................................................................page 102 2006 Standard and Poors Report..........................................................................page 109 Littons Prior Judicial Determinations...................................................................page 113 Servicing Fraud Lawsuits......................................................................................page 114 Industry Experts and websites...............................................................................page 116 Appendix................................................................................................................page 118 Conclusion.............................................................................................................page 208 1Introduction One would assume that if a borrower is in foreclosure, they probably are behind in their payments and owe the money. What most people dont know is that in some instances the foreclosures have been deliberately created. This is known as Mortgage Servicing Fraud. Mortgage Servicing Fraud Defined Mortgage Servicers breach loan agreements by misapplying or failing to timely apply loan payments, improperly charging late fees, double billing, force place insurance on properties already insured, add unearned legal fees, property appraisal fees broker priceopininons (BPOS), property inspection fees, forbearance suspense fees, corporate advance fees, and the assessing of unwarranted fees. The assessing of these unwarranted fees allows the servicer to declare home loans to be in default prematurely, and in many cases, the addition of these fees and charges creates defaults that lead to improper foreclosures. Mortgage Servicing Scheme Regardless of how reasonable a loan product homeowners may have been offered at the time of purchasing a house or refinancing, things can go bad if a predatory mortgage servicing company services the loan. These companies are hired by the banks under pooling and servicing trust agreements to receive payments on mortgages, keep track of all of the fees, make sure insurance is on the loan, as well as pay the property taxes if an escrow account is set up. However, their first priority is to maximize the profit of every loan they administer, which has led to cases of corruption and fraud. Litton is known for adding junk fees, losing a few payments, and force placing insurance on a property even before the homeowners miss a monthly installment. When a homeowner does fall behind though, Litton will begin accelerating fees very swiftly and add even more charges that seem completely illogical. While the homeowners are facing a financial crisis, the acceleration of these fraudulent fees ensure it costs homeowners thousands of dollars more to stop a foreclosure than it would have if the charges had not been added. The presence of numerous junk fees before or during a foreclosure is one of the clearest indications of mortgage servicing fraud. Homeowners may make a payment on time, but it is credited to the account late, which incurs a late fee and extra interest. After a few months of this, the borrowers may be more than a month "behind" in payments as a result of the extra charges, even if they think they have made every payment before the due date. Unfortunately, usually no amount of arguing with the servicing company results in a positive outcome. Getting a servicer to admit making such a mistake may reveal that this is a standard operating procedure, and these companies do not want to be caught in a court of law stealing homes to maximize profits. Typically, they will deny, threaten, or stonewall homeowners to avoid dealing directly with the charges on the loan. Even more unfortunate is that many local court judges go along with the servicer, because the borrowers are behind in payments, after all. This is what makes the scam so devious -- the company will add thousands of dollars of fees, but not act on it until the borrowers miss a payment. When they fall behind a few months, the thousands of 2dollars of fees, plus interest, plus foreclosure costs will immediately make it prohibitively expensive to get back on track or qualify for a mortgage modification or other solution. Making the playing field more uneven, the mortgage servicing companies have so many more financial resources than the average foreclosure victim and can hire high-priced local attorneys. The lawyers will do everything they can to pursue the foreclosure quickly and defend aggressively any claims of fraud or excessive fees. But it may only be in the courts that homeowners can stop the foreclosure process before their home is sold out from under them. The servicing companies will do everything possible to postpone serious solutions until they are able to steal the house. Most of the tactics used by companies engaging in mortgage servicing fraud have the end goal of increasing fees to make it nearly impossible for homeowners to save their properties from foreclosure. The servicer eats up the equity through junk fees, and then turns a profit when the house is sold on the market after a foreclosure sheriff sale. This results in higher, much quicker cash flow for the investors than if the loan was administered legitimately and paid off over time. Contesting the junk fees and making mortgage companies explain them adequately may be an effective, little known defense homeowners have against such mortgage misconduct. This book will document and explain Mortgage Servicing Fraud in detail. It will share my personal story of what happened to me and how I have been fighting to savemy home forthe last four years. The good news is, I understand the scheme and have a solution. I hopeyou will join me in my fight against Litton and other loan servicers who have been the root cause to our current financial crisis. 3About Litton Loans Servicing LP Larry B. Litton, Sr. founded Litton Mortgage Servicing Center in 1988 to be a sub-servicer of problem loans from various mortgage servicers and private investors. During the difficult Texas real estate market of the 1980s, Larry B. Litton, Sr. pioneered an innovative approach to mortgage loan servicing that is recognized today as a national model.4 Litton's successful methods grew out of a program called Houston Proud, which held neighborhood meetings during the height of the Texas real estate crisis, to provide distressed homeowners with information about foreclosure alternatives. Houston Proud was credited with preventing thousands of foreclosures as a result of its outreach efforts. Larry B. Litton, Sr. learned a valuable lesson from his experience; he realized that as customers understood their options and became part of the solution, they would work with loan servicers rather than against them and superior cure rates would result. Larry B. Litton, Jr., is the President and Chief Executive Officer of Litton Loan Servicing, overseeing the day-to-day operation of Littons $75BB mortgage servicing portfolio.5As a founding member of the company, Larry has been involved in every aspect of the business since its inception in 1988 and has been a leader behind Littons commitment to high quality customer care. Larry has implemented a number of programs and systems at Litton that have increased customer satisfaction and raised service levels to the top of the industry. Under his direction, the company has developed a host of default servicing technologies and loan resolution programs that have significantly reduced credit losses for investors and have resulted in preserving home ownership for tens of thousands of families across America.6MISSION STATEMENT Litton's mission is to provide quality customer care for its strategic client relationships by providing superior added value servicing for credit-sensitive 4 Found on Litton Loan Servicing LPs website. www.littonloan.com 5 See Appendix P- page 202- Statement of Larry B. Litton Jr. November 14, 2008 Domestic Policy Subcommittee Oversight and Government Reform Committee Is Treasury Using Bailout Funds to Increase Prevention as Congress Intended? 6 See Appendix P-page 202- Statement of Larry B. Litton Jr. November 14, 2008 Domestic Policy Subcommittee Oversight and Government Reform Committee Is Treasury Using Bailout Funds to Increase Prevention as Congress Intended? 4Mortgage Servicing Fraud Mortgage Servicing Fraud most common cases involve the misapplication of payments, improper force placed insurance, and false claims of defaults or the amounts due. Litton has a history of failing to properly credit the borrowers payment to principal and interest and frequently compound this problem by improperly assessing late fees, improper escrow and property inspection fees, as well as BPOs and inflated attorney fees.7 The improper misapplication of one payment can have a snowball effect and has left one borrower fighting foreclosure and struggling to save his home, family, and identity for the last four years. Mortgage Servicing Fraud can occur at any time during the life of the loan including before default. The most common abuse is the misapplication of payments. Litton ignores grace periods, misapplies or fails to apply funds, and improperly charges fraudulent fees. The reason for this is mainly to generate more revenue. Litton receives a small portion for each loan they service, but are able to keep 100% of all additional fees charged to the borrower according to the Pooling and Servicing Trust agreement. Their primary source of revenue is through these fees. They make their money on bad loans, and if there arent enough, they will create more to satisfy their greed. It goes without saying they have everything to gain by pushing a borrower into foreclosure. There are several articles written about the servicers and how they manipulate loan defaults and prey on the weak and less sophisticated. After all, most of their loans are sub-prime which consists of minority, less educated and senior citizen borrowers. Below is an example of how they make money. A Way to Make More Money Lets say Litton pays $1million for the right to service a loan portfolio of 1,000 loans. The portfolio has a life of seven years. The servicing fee on the loan is .25%, which generates income of $250,000 a year. It only costs Litton $50 a year to service each loan, or $50,000 in total. Net income is $200,000 a year for seven years. The rate of return on investment is 9.2%. Now add late charges which Litton gets to retain. If a late charge of 5% is of the payment collected from just 1% of the borrowers, the rate of return on the investment jumps to almost 10%. If the late charges can be collected from 5% of the borrowers, the rate of return exceeds 12%.8 Now imagine all the other improper charges that have been added on. ( i.e. insurance, BPO, inspection, inflated attorney fees, suspense fees.) According to Larry Litton Jr., at the end of 2008 Littons portfolio consisted of $450,000 mortgage loans totaling $75 billion of predominantly sub-prime mortgages. 7 See Scott v. Fairbanks, (S.D. Ohio 2003) 284 F. Supp. 2d 880, Ocwen Federal Bank FSB Mortgage Servicing Litigation. 2005 WL 1027118 (N.D.Ill.)8Testimony of Maureen McGrath on Behalf of National Advocacy Against Mortgage Servicing Fraud Before the Subcommittee on Capital Markets, Insurance and Government sponsored Enterprises Field Hearing: Broken Dreams in the Poconos www.financialservices.house.gov/media/pdf/061404mm.pdf 5How it Starts The path toward losing a home can be quite simple when Litton is involved. The first phase is to fabricate a default. This is done by force placing insurance, adding additional fees, or manipulating the date the monthly payment was received in order to create a late payment. The late fee or other fees are deducted from the next months principal and interest payment, which then creates a partial payment which is placed in a suspense account and another late fee is added. The homeowner is now considered one month delinquent. The following month when the payment is made, the payment will be divided again. Part of the payment will be applied to the money being held in suspense to make a whole month payment. Part of the payment will be added to the new late fee, and part of the payment will be placed in suspense because it is a partial payment for the currents months scheduled payment. This series of events will continue until the consumer is 90 days late. At this point the loan will be placed in default and additional opportunities arise for Mortgage Servicing Fraud to occur. Why would Litton do this? According to their pooling and servicing agreement, once a property has been placed in default and it has been determined that recoupment of any advanced fees is negligible, Litton no longer needs to forward the monies collected to the trustee for distribution. Usually, at this point the borrower is still making mortgage payments or they have entered into a forbearance agreement. Litton is applying the payments to fees they assessed. This now leaves Litton free from having to advance any money and leaves the payments free for application to illegal and improper fees. According to the pooling and servicing trust agreement, once a property has been placed in default, Litton is reimbursed from the trust for all out of pocket expenditures, including servicing advances. In addition, Litton is entitled to recoup from the proceeds of the sale any advances not reimbursed by the trust. If, however, there is no realization of sufficient capital to pay off the note and recoup the out-ofpocket expenditures, the mortgage servicer is reimbursed by the insurer of the trust. According to the pooling and servicing agreement, Litton has the right to purchase from the trust the notes of any properties placed in default. The certificate holders of the top tiers of the trust are reimbursed for this loss through the lower tiers over collateralization. Litton can have a judgment entered against the homeowner for any arrearage not covered after the foreclosure sale. Litton is often the entity that enters the bid for the property, and they then place the property in an Real Estate Owned (REO) and attempt the sale of the same property for full market value. 6Misapplication of Payments This is the most common form of Mortgage Servicing Fraud. Servicers are known for ignoring grace periods, misapplying funds or failing to apply funds correctly. The misapplication of payments can happen for a few different reasons. Sloppy accounting procedures, defaulted software, overworked employees, or to generate more revenue. This leads to a breach of contract for failing to follow the payment application provision contained in the mortgage documents. This happens more often than not. The failure to apply one payment properly can lead to a snowballing effect. Force Placed Insurance Every borrower is required by the mortgage documents to provide evidence of hazard insurance. When this evidence is not received, the servicer purchases their own and passes on the cost to the homeowner. This raises the borrowers monthly payment sometimes by $200.00 or more a month. A servicer usually is influenced to pick certain insurers based on kickbacks and refunds that compensate the servicer and provides for additional revenue. Given this opportunity, a servicer will at times force place insurance even when the borrower has already provided evidence of coverage. This causes the payment schedule to become confusing and often escalate the borrower being forced into foreclosure.9 Improper Fees The most common types of improper fees charged are: Late Fees Forbearance Suspense Fees Property Inspection Fees BPO Fees Corporate Advance Fees Improper Escrow Fees Inflated Attorney Fees Double Billing of the above mentioned fees Late Fees: There are times when the servicer will deliberately hold an on time payment to create a late fee. The imposition of one late fee can lead to foreclosure. Often times a servicer will bill two late fees in one month for the same payment. In one instance, Litton billed a borrower $528.21 in late fees, when the prior month there was only a $21.84 deferred late charge. The servicer keeps 100% of all late fees charged as profit. Late fees can't be charged after a loan is accelerated.10 Forbearance Suspense Fees: fees that have been held in an account not designated for principal, interest or escrow. The funds are to remain in the account until they are properly designated. Servicers find a way to fabricate a suspense account so they can apply the money held in the account to their improper fees. 9 See Norwest Mortgage, Inc. v. Superior Court Cal. App. 4 Dist., 1999. Mortgagors brought action against mortgagee, claiming that mortgagee's Forced Placement Insurance (FPI) program was an unfair business practice under the unfair competition law (UCL) because the cost charged to mortgagors for home insurance was unnecessarily expensive in that it included an amount sufficient to cover rebates provided by the insurer. 10See FDIC v. M.F.P. Realty Associates, (D. Conn., 1994), 870 F. Supp. 451 7Property Inspection Fees: a fee charged by the servicer to make sure the home is occupied and to make sure it is not in bad condition. It consists of an agent driving by the property. It is a normal procedure of the mortgage industry. However, in order to reap additional profits the servicer will bill sometimes for nine or ten in one month. They are book entries and have not been performed.11 BPO Fees:are Broker Price Opinions. This is done to get a median price of the value of a property. It is done in lieu of an appraisal. Again, the fee in itself is standard, but often they are book entries and the homeowner is double billed for a single BPO.12 Corporate Advance Fees:is when the mortgage servicer will post your payment to a suspense account (especially if the payment is different than the amount that was due). Later, the mortgage servicer may take money from the suspense account to pay an item called corporate advance. Typically, corporate advances are disbursements for servicing related expenses (not taxes and insurance) that the servicer has paid with servicer funds - these fees may include foreclosure expenses, attorney fees, bankruptcy fees, and force placed insurance. Many times the servicer will pay a corporate advance from the suspense account when the monies should have been applied elsewhere to the loan. This can cost the consumer a lot of money in the long run and lead to foreclosure. Improper Escrow Fees: One of the benefits of servicing mortgages is controlling escrow accounts to pay for insurance and taxes. At times the servicer will charge escrow fees for the improper placing of force placed insurance. In my particular case, Litton charged an escrow fee called other fees due, but never could say what those other fees were. Inflated Attorney Fees: The Federal National Mortgage Association states the standard attorney fee allowed in a foreclosure is $1100.00.13 Servicers will often charge $2000.00 or more for attorney fees when the contracts with the attorneys dont specify it. These inflated attorney fees are another way for the servicer to reap additional profits. Residential mortgage-backed securities (RMBS):are a type of bond commonly issued in American security markets. They are a type of Mortgage-backed security which is backed by mortgages on residential rather than commercial real estate. Mortgage Pooling and Servicing Agreement: describes how pooled residential loans will be serviced and dictates how proceeds and losses will be distributed to bondholders. Primary Servicer (or Sub-Servicer):In some cases the Borrower may deal with a Primary Servicerthat may also be the loan originator or Mortgage Banker who sourced the loan. The Primary Servicer maintains the direct Borrower contact, and the Master Servicer may sub-contract certain loan administration duties to the Primary or Sub-Servicer. 11 See Chatman v. Fairbanks Capital Corp., 2002 WL 1338492 (N.D.Ill.) See Majchrowski v. Norwest Mortgage, Inc., 6 F.Supp.2d 946, 964-65 (N.D.Ill.1998) improper because such fees are "fraudulent" and "bogus" charges for work not actually performed 12 See Porter v. Fairbanks, 2003 WL 21210115 (N.D.Ill.) the Broker Price Opinions were not necessary to protect the value of the Property 13 See Gonzales v. Codilis & Associates, P.C., 2004 WL 719264 (N.D.Ill.) there is a question as to whether the fees assessed by the Defendant were reasonable as required by the mortgage agreement. 8Master Servicer: The Master Servicers responsibility is to service the loans in the pool through maturity unless the Borrower defaults. The Master Servicer manages the flow of payments and information and is responsible for the ongoing interaction with the performing Borrower. The Master servicer acts as an oversight agent for the loan level data provided by the primary servicer or sub-servicer. Special Servicer: Upon the occurrence of certain specified events, primarily a default, the administration of the loan is transferred to the Special Servicer. Besides handling defaulted loans, the special servicer also has approval authority over material servicing actions, such as loan assumptions. Directing Certificateholder / Controlling Class / B-Piece Buyer: The most subordinate bond class outstanding at any given point is considered to be the Directing Certificateholder, also referred to as the Controlling Class. The investor in the most subordinate bond classes is commonly referred to as the B-piece Buyer. B-piece Buyers generally purchase the B-rated and BB/Ba-rated bond classes along with the unrated class. Trustee: The Trustees primary role is to hold all the loan documents and distribute payments received from the Master Servicer to the bondholders. Although the Trustee is typically given broad authority with respect to certain aspects of the loan under the PSA, the Trustee typically delegates its authority to either the Special Servicer or the Master Servicer. Rating Agency: There will be as few as one and as many as four Rating Agencies involved in rating a securitization. Rating agencies establish bond ratings for each bond class at the time the securitization is closed. They also monitor the pools performance and update ratings for investors based on performance, delinquency and potential loss events affecting the loans within the trust. The four rating agencies are: A.M. Best Fitch Ratings Moodys Investor Servicers Standard and Poors Insurance Rating Services 9 Illegal Foreclosure Process MSFraud.org Performing Loan Payments held until LATE. Force placed insurance added to already insured loans. Payments misapplied. Account flooded with illegal and unwarranted fees.Future payments applied to illegitimate charges. Future payments refused. Account balance dramatically increases! Account forced into DEFAULT.EQUITY and escrow overages consumed by illegal fees. Credit rating DESTROYED by false reporting. Homeowner has no recourse to prevent the EXTORTION of equity and property. Courts allow the ILLEGAL FORECLOSURE. Homeowner forced into forbearance agreement to strip away legal rights.Homeowner cannot afford payments [plus] the unlawful fees.10My Personal Story The Purchase On May 10, 2002, we bought a single family home for $214,000.00. It was broken up in two loans; the first amount: $171,200.00, and the second amount for $42,800.00. The program was a self employed stated loan. Bank statements were required to document the ability to afford the loan. The interest rate was 7.3% on the larger amount with a payment of $1173.70. 14 The interest rate on the second was 10.8% with a payment of $435.96. The first payment was due on July 1, 2002. There was no escrow account set up. The Default On May 1, 2003, Defendant, for reasons beyond their control, failed to make the regular monthly payment and was in default. On May 27, 2004 Litton Loan Servicing quoted the sum of $19,902.02 to reinstate the default and borrowers tendered the amount requested.15 Servicing Abuse Starts (Double Billing and Illegal Charges) This was the first opportunity for Litton Loans to start their servicing abuse. They improperly demanded $10.92 for fourteen months for an escrow account in the total amount of $152.88. 16 Litton double billed reinstatement fees: $100.00 BPO fee, $36.00 recording fee, $44.50 inspection fee, $1,095.00 corporate advance fee, $1,435.00 foreclosure cost (attorney fee), and aPrev Srv/Farrell Fee of $585.17 Misapplication of Payments In August of 2004, for reasons beyond their control, the borrowers failed to make the regular monthly payment. On September 29, 2004, borrowers tendered $2668.14.00 as quoted by Litton to reinstate their loan.18 This amount was incorrectly calculated and improperly collected $833.35 from Defendants as follows: The only monthly payments which were due and owing were those for August and September of 2004, in the sum of $1,173.70, which, together with late charges of $58.69, totaled $2,464.68, not $2,668.14. A difference of $203.46 was improperly demanded and collected from Defendants. Litton applied the funds tendered from the $2668.14 payment as follows:19 $160.37 to escrow when the subject mortgage does not provide for an escrow $586.90 was applied as late charges, when only $117.38 in late charges had accrued sum of $688.48 was improperly deposited into a suspense account On October 29, 2004 borrowers tendered a payment in the amount of $1188.90 and believed the loan to be current. Litton applied the funds tendered from the payment as follows:20 14 See Appendix B -the Note, page 122 15 See Appendix A- Reinstatement Quote, page 11916 See Appendix C- Payment History, pages 125-127 Line #s 23,25,27,29,31,33,35,37,39,41, 43,45,47and 49 17 See Appendix C- Payment History, pages 127-128 Line #s 52,53,54,55,56,57,58,59,60,61,63,and 64 18 See Appendix J-Payment debited from borrowers bank account, page 148 19 See Appendix C-Payment History, page 127 Line #s 79,80,and 81 (total payment credited was $1392.76) 20 See Appendix C-Payment History, page 129 Line # 84, 11 $15.20 to escrow when the subject mortgage does not provide for an escrow Improper Escrow, Late Fees and Suspense Account On November 14, 2004 borrowers tendered a payment in the amount of $1188.90 and believed the loan to be current. Litton applied the funds tendered from the payment as follows:21 $15.20 to escrow when the subject mortgage does not provide for an escrow $58.69 was applied as late charge when the loan is past due after the 15th $571.10 was improperly deposited into a suspense account $58.69 was applied as late charge again on November 16th Forbearance Suspense Charges On December 29, 2004, borrowers tendered the amount of $1188.90 for the December payment. Litton applied the funds tendered from the payment as follows:22 $15.20 to escrow when the subject mortgage does not provide for an escrow $512.41 was improperly deposited into a suspense account On January 17, 2005 borrowers tendered a payment in the amount of $1188.90 and believed the loan to be current. Litton applied the funds tendered from the payment as follows:23 $15.20 to escrow when the subject mortgage does not provide for an escrow $453.72 was improperly deposited into a suspense account $58.69 was applied as late charge On February 16, 2005, Litton Loan Servicing issued a Notice of Default and Intent to Accelerate, stating the amount necessary to cure the default then existing was $1,982.77.24 The sum quoted by Litton Loan Servicing on February 16, 2005 was incorrectly calculated and improperly collected $750.38 from Defendants as follows: $15.20 to escrow when the subject mortgage does not provide for an escrow The remaining balance of the sum of $735.18 demanded in Littons February 16, 2005 letter is unknown and not ascertainable from the accountings provided by Litton. In February of 2004, borrowers contacted Litton Loan Services and spoke with Minnie Rodriquez to discuss the default and reinstatement. Minnie advised that contrary to the February 16, 2005 Demand Letter, the sum necessary to reinstate was $5,090.35.25 Borrowers advised Minnie Rodriquez of Litton Loan Servicing that they disagreed with the statement of the amount owed of $5,090.35, and that the monthly payments accruing on the loan were incorrect inasmuch as the loan documents provided the monthly payments of principal and interest were to be $1,173.70 and not adjust until June 1, 2005, rather than $1,184.62 or $1,188.90 as contended by Litton. 21 See Appendix C-Payment History, page 129 Line #s 87,88,89, and 91(total payment credited was $1247.59) 22 See Appendix C-Payment History, page 129 Line #s 94 and 95 (total payment credited was $1247.59) 23 See Appendix C-Payment History, page 129 Line #s 98,99 and 101 24 See Appendix D-Notice of Default and Intent to Accelerate, page 131 25 See Appendix E-Forbearance Agreement, page 134 12Minnie Rodriquez advised Defendants that unless they agreed to the forgoing sums as due and entered into a Forbearance Agreement that foreclosure would be filed accumulating significant additional charges for attorneys and costs. On March 23, 2005, Litton Loan Servicing issue a Reinstatement Quote upon Defendants loan stating the sum of $6,279.25 was due through and including April 15, 2005.26 The sum quoted by Litton Loan Servicing on March 23, 2005 was incorrectly calculated and improperly collected $ from Defendants as follows:27 The monthly payments were calculated at $1,188.90, when the correct monthly payment for this ARM Loan that had not yet adjusted was the face note sum of $1,173.70, for a total of $60.80 difference improperly demanded and collected from Borrowers The sums of $825.00 and $835.00 were included for Attorneys Fees not yet Billed and Attorney Costs Not Yet Billed, although no suit had been filed and no costs, upon information and belief, had yet been paid or accrued. The sum of $60.80 included in the sum quoted for Escrow Shortage was improperly demanded and collected from Borrowers inasmuch as the subject mortgage does not provide for an escrow The sum of $176.07 included in Littons March 23, 2005 Reinstatement Quote is incorrect inasmuch as only two (2) months of late charges of $58.69 had accrued. The sum of $8.50 for one property inspection is believed to be false. The sum for $72.50 for 8 property inspections is false and improperly charged. On March 24, 2005, Codilis & Associates issued a forbearance Agreement to Defendants based on the forgoing quote of Minnie Rodriguez, setting forth the arrearage as $5,090.35, and demanding payment in the sum of $3,100.00, together with a signed copy of the agreement, on or before March 30, 2005, plus monthly payment $1,110.05 beginning on or before April 30, 2005 and continuing through December 30, 2005. 28 On March 30, 2005, Defendants, regardless of the incorrect calculations and under duress created by Plaintiffs demands and threats of foreclosure, paid the sum of $3,100 to Litton Loan Servicing to reinstate the loan and cure the existing default. Regardless of the forbearance agreement, The Bank of New York initiated foreclosure proceedings on March 28, 2005.29 On April 18th, Defendants sent a letter and proof of payments (bank drafts) to Litton Loans in hopes of getting the calculations correct and the payments applied properly. Another letter was sent on August 18, 2005. Attorney sent a letter on October 4, 2005.30 Plaintiffs filed a motion for Summary Judgment. Borrowers responded on or about March 30, 2006, and submitted to Plaintiff a response to Plaintiffs motion for summary 26 See Appendix E-Reinstatement Quote, page 13327 See Appendix E-Reinstatement Quote breakdown of amounts, page 133 28 See Appendix F-Forbearance Agreement, page 134 29 See Appendix G-Premature Foreclosure, page 13530 See Appendix H-Qualified Written Requests, page 13913Judgment alleging they had not been properly credited for forbearance payments tendered, had been improperly charged for force placed insurance, and had been improperly charged for escrow charges, when the subject mortgage does not provide for an escrow, as well as other improper fees.31 Abuse of Process On March 19, 2006, Plaintiff filed a motion to withdraw its Motion for Summary Judgment, and on August 11, 2006, a dismissal order was entered and on August 18, 2006, the case 2005 CH 445 was closed.32 On August 16, 2006, Plaintiff sent a demand letter and threatened to accelerate the loan if borrowers did not pay a certain amount. Then on October 17, 2006, Plaintiff initiated another foreclosure proceeding against borrowers.33 The case has been on going for the last four years concerning motions and counterclaims. Currently the Plaintiff is seeking a ruling on a motion for summary judgment. Force Placed Insurance Borrowers had unnecessarily been charged with force placed insurance almost every seven to eight months, regardless of proof being sent. At one time borrowers received notice from Litton that the insurance had been received and the account properly credited. However, six months, we were charged again for not having insurance. The reason for this is because there is a kickback, refund, or other compensation offered by Maxi Million and Lloyds London. There is a built in incentive for the servicer to select these insurers that pay compensation to Litton. This allows them the opportunity to reap additional revenues. Even though proof of insurance may have been provided, the opportunity to make and additional $1,500.00 is not passed up. The improper charges from the force placed insurance created havoc with the borrowers payment schedule. This helped escalate the borrowers into foreclosure. Legal Claims and Defenses Racketeer Influenced and Corrupt Organizations Act (RICO) RICO 1962(a) reads as follows: In relevant part, 1962(a) provides: (a) It shall be unlawful for any person who has received any incom e derived, directly or indirectly, from a pattern of racketeering ac tivity ... to use or invest, directly or indirectly, any part of such income, or the proceeds of such incom e, in acquisition of any interest in, or the establishm ent or operation of, any enterprise which is engaged in, or the ac tivities of which af fect, inters tate or foreign commerce.... Litton violates RICO 1962(a) by the following conduct: 31 See Appendix I-Response to plaintiffs motion for summary judgment, page 142 32 See Appendix K-Plaintiffs voluntary dismiss foreclosure, page 14933 See Appendix L-New Foreclosure Complaint, page 15114 by overstating escrow payment requirements and using the mail to communicate the misrepresented charges to its customers.34 by overcharging for interest on borrowers mortgages have been injured in their business and property as a result of Littons violation35 by filing a foreclosure that contains fraudulent fees and using the mail to communicate the misrepresented charges 36 RICO 1962(b) reads as follows: In its entirety, 1962(b) reads: (b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. Larry Litton Sr. and Larry Litton Jr. violated 1962(b) by the following conduct: unlawfully, knowingly and intentionally acquire and maintain, directly and indirectly, an interest in and control of Litton Loans Servicing LP which was engaged in, and the activities of which affected, interstate and foreign commerce, through a pattern of racketeering activity, as alleged, in violation of Title 18, United States Code, Sections 1962(b) and 2.37 RICO 1962(c) reads as follows: In its entirety, 1962(c) reads: (c) It sha ll be unlawful for any p erson employed by or associated with any enterprise e ngaged in, or the ac tivities of which af fect, inters tate or f oreign commerce, to conduct or participate, dire ctly or indirectly, in the conduct of such enterprise' s affairs through a pattern of racketeering activity or collection of unlawful debt. Litton violated RICO 1962(c) by the following conduct: The intentional subm ission of inaccurate req uests for paym ent pur suant to a contractual relationship with the inte nt of obtaining funds not due under the contract.38 by overcharging for interest on borrowers mortgages injuring them in that their property is in foreclosure and their loans have been assessed improper fees.39 34 See Aitke n v. Fleet M ortgage C orp., 1992 WL 3 3926 ( N.D.Ill.), Heller v. Fi rst Tow n M ortgage Corp.,1998 WL 614197 (S.D.N.Y.) 35 See Allenson v. Hoyne Sav. Bank, 272 Ill.App.3d 938, 651 N.E.2d 573, 209 Ill. 395, Uniroyal Goodrich Tire Co. v. Mutual Trading Corp. 749 F.Supp. 869 (N.D.Ill. 1990) 36 See Majchrowski v. Norwest Mortgage, Inc., 6 F.Supp.2d 946,(N.D.Ill.1998), Chatman v. Fairbanks, 2002 WL 1338492 (N.D.Ill.) 37 See Uniroyal Goodrich Tire Co. v. Mutual Trading Corp. 749 F. Supp. 869 (N.D.Ill. 1990) 38See A itken v . Fleet Mortgage Corp., 1 992 W L 33 926 (N.D.Ill.), Heller v. First Tow n Mortgage Corp.,1998 WL 614197 (S.D.N.Y.) 39 See Allenson v. Hoyne Sav. Bank, 272 Ill.App.3d 938, 651 N.E.2d 573, 209 Ill. 395, Mark v. Keycorp Mortg. Inc., 1996 WL 465400 (N.D.Ill.), 15 by engaging in a pattern of mail fraud, receiving money as a result, while associated with a corporate group and conducting part of the mortgage servicing activities of that enterprise.40 Litton used the mails in furtherance of the interest scheme, to collect mortgage payments and to issue account statements which overstated the interest due upon each monthly payment and the principal amount remaining on the loans.41 RICO 1962(d) reads as follows: In its entirety, 1962(d) reads: (d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section. Enterprise An enterprise is generally a group of persons associated together for a common purpose of engaging in a course of conduct.42 Mail Fraud The mailings of account statements that improperly adjusted interest and principal balances, and the fraudulent fees have been part of the execution of the fraud. 43 Wire Fraud The federal wire fraud statute implicates wire transmissions, like telephone communications are used to execute a scheme to defraud. Litton calls borrowers to inform them of payments being due. 44 Pattern of Racketeering Activity A pattern of racketeering activity requires at least two acts of racketeering activity within a ten-year time period.45 There are numerous complaints with the Federal Trade Commission against Litton, prior judicial determinations, a class action suit pending, all alleging similar claims within the last ten years.46 Unlawful Debt A claim based on collection of an unlawful debt, a borrower needs only to show one instance of collection of an unlawful debt; there need be no racketeering activity and no pattern of abuse. 18 U.S.C. 1961(6), 1962(c) Injury Property is encumbered by the unlawful char ges and fees, and the charges were paid.47 40 See Mark v. Keycorp Mortgage. Inc., 1996 WL 465400 (N.D.Ill.) 41 See Allenson v. Hoyne Sav. Bank, 272 Ill.App.3d 938, 651 N.E.2d 573, 209 Ill. 395 42 See Heller v. First Town Mortgage Corp., 1998 WL 614197 (S.D.N.Y.) 43 See Allenson v. Hoyne Sav. Bank, 272 Ill.App.3d 938, 651 N.E.2d 573, 209 Ill. 395 44See Uniroyal Goodrich Tire Co. v. Mutual Trading Corp. 749 F. Supp. 869 (N.D.Ill. 1990) 45 Racketeering activity is defined in section 1961(1) in terms of a long list of state and federal crimes, including mail fraud, 18 U.S.C. 1341. See Liquid Air Corp. v. Rogers, 834 F.2d 1297, 1305 (7th Cir.1987), cert. denied,492 U.S. 917, 109 S.Ct. 3241, 106 L.Ed.2d 588 (1989) repeated infliction of economic injury on a single victim of a single scheme is sufficient to establish pattern of racketeering activity. 46 See Federal Trade Commission and Consumer complaints on page 3947 See Majchrowski v. Norwest Mortgage, Inc., 6 F.Supp.2d 946,(N.D.Ill.1998)16Borrowers have been charged excessive interest.48 Scheme to Defraud The intentional submission of inaccurate requests for paymen t pursuant to a con tractual relationship with the intent of obtaining funds not due under the contract may amount to a scheme to defraud.49 Fair Debt Collection Practices Act (FDCPA) A servicer may argue they are a creditor and not a debt collector. If the loan was in default when they received the right to service it, then they are liable. The FDCPA treats assignees as debt collectors if the debt sought to be collected was in default when acquired by the assignee and as creditors if it was not.50Litton violates the FDCPA by the following conduct: 51 attempting to collect amounts not permitted by law (15 U.S.C. 1692f(1)); using unfair and unconscionable collection methods (15 U.S.C. 1692f); giving a false impression of the character, amount, or legal status of the alleged debt (15 U.S.C. 1692e(2)); using false or deceptive collection methods (15 U.S.C. 1692e(5)); failing to state the amount of the debt as required by 15 U.S.C. 1692g(a)(1); engaging in conduct the natural consequence of which is to harass, oppress or abuse borrowers (15 U.S.C. 1692d); failing to provide disclosures required by 15 U.S.C. 1692e(11),including when sending monthly statements to borrowers; and sending notices or making communications that do not comply with the FDCPA Charging for unauthorized force-placed insurance, despite knowing the property is already insured. Real Estate Settlement Procedures Act (RESPA) Litton violates RESPA by the following conduct:52 failing to meet the requirements of 12 U.S.C. 2605 regarding transfer of servicing and responding to qualified written requests; failing to meet the requirements of 12 U.S.C. 2609 regarding escrow account statements, collection of escrow and notification of shortage in escrow account. Over escrowing Truth in Lending Act (TILA) Litton violates TILA by the following conduct:53 48 See Allenson v. Hoyne Sav. Bank, 272 Ill.App.3d 938, 651 N.E.2d 573, 209 Ill. 395 49See Mark v. Keycorp Mortgage. Inc., 1996 WL 465400 (N.D.Ill.), Aitken v. Fleet Mortgage Corp., 1992 WL 33926 (N.D.Ill.) 50 See Schlosser v. Fairbanks, (N.D. IL 2003) 323 F 3d 534 51 See Scott v. Fairbanks Capital Corp.284 F.Supp.2d 880 (S.D. Oh io 2003), Wright v. Litton, 2006 WL 891030 (E.D.Pa.), Porter v . Fairbanks, 2003 WL 21210115 (N.D.Ill.), Gonzales v. Codilis & Associates, P.C., 2004 U.S. Dist. LEXIS 5463, 52 See Wright v. Litton Loans Servicing LP 2006 WL 891030 (E.D.Pa); Johnstone v. Bank of America., N.A.173 F. Supp.2d 809(N.D.Ill.2001); Rawlings v. Dovenmuehle Mort., Inc., 64 F.Supp.2d 1156 (M.D.Ala.1999) 53See Vician v. Wells Fargo, 2006 WL 694740 (N.D. Ind.); Travis v. Boulevard Bank N.A, (N.D. Ill. 1995) 880 F. Supp. 1226, Chatman v. Fairbanks, 2002 WL 1338492 (N.D.Ill.) 17 The notes and mortgages serviced by Fairbanks are adjustable rate mortgages, subject to the disclosure requirements of Reg. Z, 12 C.F.R. 226.20(c) for variable rate adjustments. Pursuant to 12 C.F.R. 226.20(c), Fairbanks is required to include in its variable rate adjustment disclosure a statement of the loan balance. 12 C.F.R. 226.20(c) (4). As a result of the imposition of unauthorized or inflated charges, Litton fails to accurately disclose the loan balance. Littons disclosures state loan balances that are higher than it would have been but for Littons intentional improper charges.54 Illinois Consumer Fraud Act (ICFA). Litton violates the ICFA and have engaged in unfair and/or deceptive acts and practices by the following conduct:55 Imposing and collecting unnecessary and excessive fees and charges not authorized by the loan documents or by applicable law; Imposing and collecting excessive interest and unlawful prepayment penalties; Failing to properly and/or timely credit customers payments to their accounts; Improperly administering suspense and corporate advance accounts; Assessing the escrow accounts of Class members for amounts not authorized by the uniform contractual documents; Charging borrowers for unnecessary force placed insurance, and collecting excessive amounts for forced place insurance premiums for which it received a kickback; Charging borrowers improper late fees; Misleading or otherwise misinforming customers about the amounts properly due and owing; Failing to properly administer customer accounts, including, without limitation, escrow accounts, suspense accounts, corporate advance accounts, and principal and interest obligations Engaging in conduct that violates state and federal consumer protection laws; and Harassing or otherwise treating customers unfairly and without regard to obligations of good faith and fair dealing. Breach of Contract Litton breaches the contracts by the following conduct:56 imposing or collecting amounts that are not due and owing by contract including, without limitation, interest, and default-related fees, costs and charges. 54 See Vician v. Wells Fargo, 2006 WL 694740 (N.D. Ind.); Travis v. Boulevard Bank N.A, (N.D. Ill. 1995) 880 F. Supp. 1226, Chatman v. Fairbanks, 2002 WL 1338492 (N.D.Ill.) 55 See Chatman v. Fairbanks, 2002 WL 1338492 (N.D. Ill.), Bradley v. Fairbanks Capital Corp. 2003 WL 21011801 (N.D.Ill.), Rumford v. Countrywide Funding Corp. 287 Ill.App.3d 330, 678 N.E.2d 369, 222 Ill. 757, Home Savi ngs a nd L oan As sociation of J oliet v. Sc hneider., 108 Ill. 2 d 2 77, 483 N.E. 2d 1225 (Supreme Court 1985) 56 See Reed v . Litto n Loan Servicing LP, 2004 WL 1386314 (Va. Cir. Ct.), Cy phers v . Litto n Loan Servicing, L.L.P.,503 F.Supp.2d 547(N.D.N.Y.2007)Chatman v. Fairbanks, 2002 WL 1338492 (N.D. Ill.) for charging fees for work not performed; Vician v. Wells Fargo, 2006 WL 6 94740 (N.D. Ind.) for force placing i nsurance, and misapplying monthly payments. Mark v. Keycorp Mortg. I nc. 1996 WL 465400 (N.D.Ill.), Bartlett Bank & Trust Co. v. McJunkins 147 Ill.App.3d 52, 497 N.E.2d 398, 100 Ill. 420 18 misapplying or failing to apply payments, or imposing late fees and other charges not due, all in breach of the contract wrongfully accelerating the mortgage failing to honor forbearance agreements that borrowers have entered in to cure their loan defaults and save their homes by continuing the foreclosure process. force placing insurance Breach of Fiduciary Duty Litton breached their fiduciary duty by: charging excessive force-placed insurance premiums and finance charges to their escrow account.57 Negligence58Litton owed a duty of care to: avoid incurring charges for unnecessary insurance correctly calculate and apply payments avoid setting up escrow accounts that were not due or owing Loss of Consortium59The elements for a loss of consortium are: (1) defendant tortfeaser owed a duty to the injured spouse; (2) defendant tortfeaser breached that duty; (3) as a proximate cause of defendant tortfeasers breach of that duty, the spouse was injured; (4) the other spouse was married to the impaired spouse on the day of the occurrence; (5) As a proximate result of injuries to the impaired spouse, the deprived spouse sustained damages. Intentional Infliction of Emotional Distress60 Damages Emotional Distress and Mental Anguish61Legal Abuse Syndrome62 Participants in the Scheme and their roles Larry B. Litton Sr. is the main boss of the operation. Larry B. Litton Jr. is the bosss son and has taken over the operation and oversees the daily operation. 57See Vician v. W ells Fargo, 20 06 WL 694 740 (N.D. In d.); Ploog v. Ho meSide Len ding, Inc. 209 F.Supp.2d 863(N.D.Ill.,2002) 58 See Rawlings v. Dovenmuehle Mortg., Inc.64 F.Supp.2d 1156(M.D.Ala.,1999) 59See Dini v. Naiditch, 20 Ill. 2d 406, 170 N.E. 2d 881 (1960); Malfeo v. Larson, 208 Ill. App. 3d 418, 567 N.E. 2d 364, 153 Ill. Dec. 406 (1st Dist. 1990); Lorenz v. Air Illinois, 168 Ill.App.3d 1060, 522N.E.2d 1352, 119 Ill. Dec 493. 60See Farnor v. Irmco Corporation., 29 Il l. Dec. 894 (1st Di st. 1979) Johnson v. Federal Reserve Bank of Chicago, 199 Ill.App.3d 427, 557 N.E.2d 328, 145 Ill. Dec. 558. 61 See Wright v. Litton Loans Servicing LP 2006 WL 891030 (E.D.Pa); Johnstone v. Bank of America., N.A.173 F. Supp.2d 809(N.D.Ill.2001); 62http://www.legalabusesyndrome.org Explaining Post Traumatic Stress Disorder resulting from abusive and protracted litigation. 19The Investors Litton is a wholly owned subsidiary of C-BASS, which ultimately is owned by MGIC Investment Corporation (46%), Radian Group, Inc. (46%), and C-BASS management (8%). MGIC Investment Corporation and Radian Group, Inc. C-BASS was formed in July 1996 and is a joint venture company. Litton, which specializes in the servicing of sub-prime and non-performing loans, is a wholly-owned subsidiary of C-BASS. C-BASS has a residual interest in approximately 85% of the securitizations that Litton services.(2005 Moody Report) Attorneys To support the management of legal issues that arise in the normal course of business on behalf of our clients and investors, Litton Loan Servicing LP has contracted with various attorney firms across the country. Litton has one of the highest success rates in the industry when it comes to finding alternatives to foreclosure for our customers. Litton views its foreclosure attorneys as "strategic partners." They are part of the loss mitigation effort and try to obtain loss mitigation resolutions during the foreclosure process. The attorneys Litton has used are: Codilis and Associates -www.codilis.com63 Pierce and Associates -www.atty-pierce.com Varga Berger Ledsky Hayes & Casey -www.vblhc.com Rules Governing the Legal Profession and Judiciary in Illinois Rule 1.2 Scope of Representation (d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a clie nt and m ay counsel or assist a client to make a good-faith effort to determ ine the vali dity, scope, meaning or application of the law. (f) In representation of a client, a lawyer shall not: (1) file a suit, assert a position, conduct a defense, delay a trial or take other action on behalf of the client when the lawyer knows or reasonably should know that such action would serve merely to harass or maliciously injure another; (g) A lawyer who knows a client has, in the course of representation, perpetrated a fraud upon a person or tribunal shall promptly call upon the client to rectify the same, and if the client refuses or is unable to do so, the lawyer shall reveal the fraud to the affected person or tribunal, except when the info rmation is protected as a privileged communication. (h) A lawyer who knows that a person other than the client has perpetrated a fraud upon a tribunal shall promptly reveal the fraud to the tribunal. 63 See Gonzales v. Codilis & Associates, P.C., 2004 U.S. Dist. LEXIS 5463, Shea v. Codilis., 2000 WL 336567 (N.D.Ill.) 20Rule 3.1 Meritorious Claims and Contentions A lawyer shall not bring or defend a proceed ing, or assert or controvert an issue therein, unless there is a basis for doing so that is not frivolous, which includes a good-faith argument for an extension, m odification or reversal of exis ting law. A lawyer for the defendant in a criminal proceeding, or the respondent in a proceeding that could result in incarceration, may nevertheless so defend the proceeding as to require that every element of the case be established. RULE 3.2 Expediting Litigation A lawyer shall make reasonable efforts to expedite litigation consistent with the interests of the client. RULE 4.4 Respect for Rights of Third Persons In representing a client, a lawyer shall not use means that have no substantial purpose other than to e mbarrass, delay, or burden a third person, or use m ethods of obtaining evidence that violate the legal rights of such a person. Legal Claims against attorneys These attorneys are aware of Littons scheme and owe a duty to the non-client in certain situations. As a result of their knowledge, they are liable under their code of ethics.64 Abuse of Process Fraud upon the Courts Intentional Infliction of Emotional Distress Fair Debt Collection Practices Act Wasteful Litigation 64 See Aba Section Of Real Property, Probate And Trust Law 15th Annual Real Property, Estate Planning Symposia May 13, 2004 What Gets Lawyers Sued Representative Cases On Aiding And Abetting, Conflicts Of Interest, Drafting Errors and Unauthorized Practice Of Law By Jack Brant and Nelse T. Scheck, Rodey, Dickason, Sloan, Akin & Robb, P.A. Albuquerque, New Mexico www.abanet.org/rppt/meetings_cle/spring2004/rp/realestatelawyerssued/schreck.pdfwww.abanet.org/rppt/meetings_cle/spring2004/rp/realestatelawyerssued/creamer.pdf 212223242526Woman makes payments, but faces foreclosure New Port Richey, Florida -- Nadine Knowles is standing on the steps of the West Pasco Court House saying her house is scheduled for public sale right here on Thursday morning. Knowles can't understand how she is losing her home despite making mortgage payments of $812.90 to Litton Mortgage every month. Knowles' certified bank statement shows the checks were cashed, but the company says she defaulted. "It just doesn't add up," Knowles says. Knowles believes her problems started after her initial mortgage on the house was sold to another mortgage company. The new company started an escrow account for her taxes and insurance, even though Knowles has proof she has already bought and paid for insurance and paid the taxes. "There's numerous letters back and forth with me, and the mortgage service never got anywhere," Knowles explains. But it did no good when Knowles came to Pasco Court and showed the judge she had proof that she had made her payments and it had been deducted from her account. The judge issued an order that her home be sold on the courthouse steps. "I can't believe when you bring proof into the courtroom, that your house can be and still be taken away," she says. The mortgage company's attorney told Judge Lowell Bray that the company had not received payments or attempted payments, which appear to be a lie. That's because since last February, the mortgage returned Knowles' checks and sent letters saying the amount is not enough. Even Knowles admits she would find this story hard to believe if it was someone else. "I would say, 'She didn't make a payment somewhere, something's messed up,'" Knowles admits. But then she adds, "I made payments, I paid my insurance, I paid my taxes. And I'm losing my home." Mike Deeson, Tampa Bay's 10 News 27Homeowners pay their mortgages, but face foreclosure Port Richey, Florida - Barbara Smith says it's very scary to think of losing your home when all you want to do is make your payments. But that became a reality for Smith, after Litton Mortgage Servicing took over her mortgage and her payments went from $963 a month to $1,412. She says the company added insurance to the mortgage, although she already had her own. "I've been trying to get that rectified and trying to get it settled with the company to no avail," she says. Nadine Knowles was in the same boat with her home. She had paperwork showing she paid the original loan amount, but the company tried to charge her extra for taxes and insurance she'd already taken care of. She refused to pay, and last week her home was sold at auction. "I'm a homeowner that got screwed and that's OK in America, and that's OK with our courts," Knowles says. Barbara Smith says her income doesn't allow her to make the extra payments, but she was afraid of losing her Port Richey home. So she says she is doing everything she can to send the money to Litton Mortgage Servicing, even though she says they're not entitled to it. "I took money out of my 401K to make the higher payments, because if I don't make the higher payments, they won't accept any payment. They will return my payment to me." Thousands of homeowners are facing the same problem and there aren't many places to turn. W. Craig Kennedy, who co-wrote the Mortgage Servicing Kit, says never complain over the phone, because there isn't a paper trail. When you write to complain, you must put the words "qualified written request" at the top of the letter. If you do, federal law says you can't be ignored. "They must respond in 20 days and solve it in 60 days," Kennedy says. "If you don't put that at the top of the letter, they can ignore it." But there are still thousands like Barbara Smith who are overpaying, and thousands more like Nadine Knowles are losing their homes. It is happening every day in Florida and throughout the country. Litton Mortgage Servicing never returned our calls to comment on the story. Litton is the target of a class action suit for similar allegations. Mike Deeson, Tampa Bay's 10 News 28In the Sub-Prime of Life Homeowners complain that Litton Loan is quicker to foreclose than it needs to be By Craig Malisow published: May 17, 2007 Debra Murray may have saved a lot of homes from foreclosure, but she couldn't save her own. Murray was worried when her employer became her loan servicer.As a research specialist for Houston-based Litton Loan Servicing, a mortgage payment collection agency, Murray was in charge of combing through troubled loans to see what went wrong where. Every month, more than 300,000 borrowers throughout the country are obligated to send monthly payments to Litton, totaling a portfolio of $43 billion. With that many payments, mistakes are unavoidable. And in the world of subprime loans, a simple error such as a misapplied payment can snowball into a force that knocks a customer out into the street. If the simple error isn't caught in time, the customer can be royally, if not legally, screwed. It was Murray's job to catch these mistakes, notify the proper departments and stop the foreclosure machine. Murray says there were more than enough mistakes to keep her busy. She wrote letters to borrowers explaining discrepancies and detailing their loan status, and Litton graded her punctuation and grammar monthly. With a red pen, Murray's department supervisor would scold the researchers for misplaced commas and dangling participles, ignoring the fact that they might have saved a borrower's home from foreclosure. Like many of the people whose loans she investigated, Murray was a first-time homeowner with a subprime loan. In 2004, three years after she started at Litton, Murray, her husband and their three adult sons moved into a four-bedroom home in a quiet subdivision in southwest Houston. 29She entered into the kind of adjustable rate mortgage behind the surge of 1.2 million foreclosures for 2006; the kind with a sweet two-year teaser rate that would mushroom in month 25 and reset every six months beyond. In Murray's case, that meant a jump from a 7.3 percent interest rate in March 2004 to about 11.3 percent by February 2007. But Murray's troubles started well before month 25. Like every other subprime borrower, Murray has no control over which company services her loan. That decision is made by investors who might never meet the borrowers but who know their profile: Their credit is spotty, their paychecks are modest and there's a good chance their skin is of a darker hue. And despite the fact that Murray is incorrectly listed as white on her loan application, she fits that profile. Murray's loan wound up in a $900 million pool of mortgages and other receivables that back bonds sold by Lehman Brothers. That pool was originally serviced by Ocwen Financial but was ultimately switched to Litton. Besides servicing subprime loans, Litton also invests in about 80 percent of its portfolio through parent company C-BASS. As soon as Murray found her loan had been switched to Litton, she wanted it transferred. She believed that Litton made too many mistakes, and she didn't want to wind up like one of the borrowers in her thick stacks of troubled loans. She says she talked with superiors who said the loan could not be transferred. A sinking feeling became outright panic, Murray says, when her husband and two of her sons lost their jobs and she defaulted on her loan well before her teaser rate expired. (One of her sons had worked at a law firm that files foreclosures for Litton). I know they're going to fire me that's the first thing you think in your head, she recalls months later. They don't want this. She was right. After falling four months ($4,000) behind, Murray was fired, and Litton began the process of repossessing her home. She's now one of the Litton borrowers seeking class certification in a lawsuit filed in a California federal court. They accuse Litton of forcing them into foreclosure by assigning predatory fees. And those who talk to Murray often walk away with one question: If that's how Litton treats its employees, how does it treat debtors it doesn't even know? Texas reported 156,876 foreclosures in 2006, more than any other state, according to foreclosure marketplace tracker RealtyTrac. That's one out of every 51 homes, giving Texas the fourth-highest foreclosure rate in the country. Depending on whom you ask, the subprime loans behind many of these foreclosures are predatory packages destined for failure, a saving grace for people who've been turned away from 30conventional loans or a conspiracy among the shadow-cloaked cabal comprising the investor-lender-broker-underwriter complex. If the foreclosure boom associated with the subprime market were the work of one master power like the Illuminati, things might be easier. Instead, the market is a constellation of dubious lenders, brokers, servicers and investment trusts, each of which has just enough involvement to make a bundle and just little enough to plead plausible deniability when the whole structure collapses. However, there are those who say that not all subprime lenders are predatory, and that these loans can work well for responsible people with realistic expectations. Denetta Williams, the broker who helped close Murray's loan, says that while there are genuine victims of subprime lending, Murray wasn't one of them. She says Murray would've qualified for a conventional loan on a smaller house, but was dead set on a four-bedroom, $127,000 home. Moreover, the loan's 7.3 percent introductory interest rate was more than fair, Williams says. Williams, who is black, says that while there are blacks who have been outright ripped off by predatory lending, the subprime market has also given the black community a chance it didn't have before. In many cases, she says, the sob stories that drive media reporting are examples of basic whining, not victimization. Nobody made them go and buy that house, she says, later adding that when the underclass blows a true opportunity, they make it a poor me' situation...It's the American dream. They're giving you a chance. And time after time they blow it and then they go and blame the establishment. And it's not the establishment. Subprime loans took off in the 1990s and exploded after 2000, according to Prentiss Cox, associate professor of clinical law at the University of Minnesota. That year, subprime loans made up eight percent of all mortgage loans. By 2006, subprime loans accounted for 22 percent of a $6.5 trillion market. Simply put, there are a lot of people who can benefit from originating a loan for an unsophisticated, first-time homebuyer with sketchy credit. It doesn't matter if they can identify a balloon payment, and it really doesn't matter if they can actually afford the house, because by the time the Sheriff is auctioning it off, most of the interested parties have been paid. The reason there's an explosion of foreclosures is there was an explosion of incredibly stupid and risky lending over the last ten years and particularly over the last three years, Cox says. Enter securitization. Unlike the bank-and-borrower mortgage of yesteryear, when a single lender oversaw the entire life of a loan, the advent of mortgage-backed securities allowed lending institutions to shift risk to investors. The mortgage company can sell the loan to a Wall Street firm like Lehman Brothers, which bundles thousands of loans into a pool with different tiers of credit risk, called tranches. The firm then sells bonds backed by the mortgages to investors, who make money off the loan payments. The loan pool is held by a special-purpose vehicle a trust 31established to keep the pool at arm's length from the sellers of the bonds and the investors. The firm then hires a master servicer to collect the payments from conventional, healthy loans, while a special servicer deals with the subprime. If the borrower defaults, it's the servicer who has to handle the foreclosure. Often, as in Litton's case, the special servicer or an associated entity is also an investor. With so many investors wanting a piece of the market, some loan originators have put quantity ahead of quality and churned out the kind of loans that Cox bemoans. Many subprime loans are stated income, in which the borrower plucks a number out of the air and everyone looks the other way. Tack that onto an adjustable mortgage rate, where the borrower is enticed by a low initial interest rate, and the loan practically sells itself. This system got hundreds of thousands of people with questionable credit into houses it just hasn't kept them there. In April, when proponents and critics of the subprime loans associated with securitization testified before the Senate Banking Subcommittee, Lehman Brothers made sure it would be heard. In his statement, David Sherr, managing director of Lehman's securitized products, explained: While this subcommittee is focused on very recent instances of foreclosure, please remember that for three decades, mortgage-backed securities have provided, and continue to provide, great benefits to the average American...It cannot be emphasized enough that no participant in the securitization process has any incentive to encourage the origination of loans that are expected to become delinquent. Additionally, he testified, Servicers are ramping up their home retention teams both with respect to early intervention for at-risk borrowers and loan modification programs for borrowers that are in financial crisis. But sometimes foreclosure is unavoidable, and when it comes to that, the servicer has to play the heavy. The servicer is the only entity the borrower sees kicking them out of their house. And while servicers are not interested in owning real estate, they are not beholden to the borrower; they work for the sellers of the securities, and their flexibility in working out payment arrangements for troubled loans is spelled out in their contract with those sellers. In many cases, the servicer is given a lot of flexibility to help borrowers out of a jam that is certainly the case with the loan pool that Murray's loan fell into. For that pool, Litton is allowed to waive or defer missed payments and refinance loans once they go into default. It's because of this latitude that Litton CEO Larry Litton Jr. sees his company as the last line of defense for the borrower. And that's why, he says, Litton saved 70,000 people from foreclosure last year and is projected to save 95,000 this year. Unfortunately, he says, the satisfied majority is often overshadowed by the civil suits and online complaints of a bitter few who didn't like hearing that Litton wouldn't offer a free ride. However, it's difficult to tell if it's the borrowers who don't like what they hear, or if it's Litton. 32Larry Jr. is a friendly guy with a twang who drifts in and out of a downright down-home feel when he talks about what his company does and his pride in that work. Founded in 1988 by his father the most solid citizen you will ever meet, Larry Jr. says the company began with five employees handling a few thousand Texas loans. Today, Litton's 1,500 employees handle more than 300,000 loans in 50 states, making Litton one of the top 20 servicers in the country. The company consistently receives high grades from rating agencies like Moody's and Standard & Poor's. Larry Jr. often finds himself playing myth-buster, trying to make people understand that Litton does not profit from foreclosure. He says that, with legal and real-estate-related fees, the company spends about $50,000 foreclosing a home. And while Litton might recover much of that from the sale of the house and the collection of those fees, Larry Jr. says it's not in anyone's interest to foreclose on a home. We would always rather have someone in that house, making a payment, he says, adding later, When the borrower don't pay, we pay...At any given time, we have half a billion dollars of our money outstanding that we've had to advance. And in the end, he says, I sleep well at night. I believe we have the best business practices in the industry today. I think our people believe in those business practices I'm very, very proud of that. When Larry Jr. and Litton publicist Donna Marie Jendritzen said they wished the media could hear from some of the 70,000 borrowers whose homes Litton saved last year, the Press asked how that wish could be fulfilled. What resulted might be indicative of an apparent disconnect between how Larry Jr. believes his collectors treat borrowers and how they are actually often treated. Jendritzen said federal privacy laws would make it difficult to find some satisfied souls to talk, but she would see what she could do. Ultimately, she rounded up two borrowers in Cleveland, Ohio, who explained, or tried to explain, their loan histories in a conference call. The borrowers were calling from the offices of a nonprofit housing advocacy group called East Side Organizing Project, which acts as a liaison between distressed borrowers and their servicers. Only one of the two borrowers said he resolved his issues directly with a Litton representative. In that case, Antonito Bradley fell behind a number of times over a two-year period. Litton ultimately waived his fees and knocked $21 off his monthly payments; the missed payments were calculated back into the principal. He does not expect to fall behind again. They gave me a second chance, basically, he said. In what was supposed to be the second testimony to Litton's ability to work with borrowers, Luvonia Menefee said Litton doubled her monthly payment without telling her why. 33They upped it to $1,400 [from $669], she said. I wondered, How could you do this?' And then that was when I could not get nobody, you know, to call back. It was always, I'll call you back.' I couldn't get no explanation, so I stopped paying. Menefee said that, while she had the money, I was not going to send money somewhere where no one could tell me where it was going. After seven months of not paying and not getting an explanation for the increase, she was notified that Litton was going to foreclose. Finally, my brother-in-law told me about ESOP, she said, and this is when I went to them. And they was like my communicator. ESOP got on the horn to Litton and got them to knock $1,026 off her monthly payment. If it wasn't for ESOP, I wouldn't have been...able to smile again, Menefee says. When asked if a Litton borrower could get the same results if they weren't lucky enough to live in Cleveland, with ready access to ESOP, she said, It's hard to say. To get more positive statements about Litton's willingness to work with borrowers, one would need to check the company Web site's Customer Testimonials section, the title of which erroneously implies that Litton's customers are the borrowers and not the sellers and investors perched at the top of the ladder. Some examples: Thank you all for everything. You all are wonderful folks. B.T. I have been very happy with your company in the short time that I have been with Litton L.H. Thank you for helping me save my home. God bless you. F.L. B.T., L.H. and F.L. could not be reached for further comment. If anything, Litton is consistent in the kind of suspension of disbelief it takes to think Menefee's story is a testament to Litton's good nature. A partial review of the 1,000 complaints Litton borrowers filed with the Federal Trade Commission in 2006 details rude customer service and the inability of Litton employees to explain excessive fees that seemed to appear out of nowhere. A 2006 case from the Ninth Circuit U.S. Bankruptcy Appellate Court in Seattle helps illustrate the split between what Litton states are easy-to-understand monthly statements and what other people might consider hieroglyphics. The case involved a married couple who filed for bankruptcy and disputed an additional $30,000 that Litton said they owed. The appellate court's ruling included statements from the trial judge, who repeatedly asked Litton's lawyers to provide clear itemized statements, and, apparently 34unsatisfied with what the lawyers presented, finally said, Well, I don't get it, and ruled in favor of the borrowers. When Litton appealed, the appellate court was similarly puzzled over the mysterious $30,000. We agree with the trial court that what Litton provided was gibberish, the opinion states. Elsewhere in the ruling, the judges state that, in addition to being gibberish, Litton's paperwork might also be classified as sketchy. When asked about that description, Larry Jr. said, Number one, we do not use gibberish. I would completely disagree with that characterization. He said the majority of judges involved in Litton litigation have no problem understanding the company's itemized statements. A few months before the Seattle judges were scratching their heads over the unexplained $30,000, a judge in a federal district court in Philadelphia was trying to get his arms around a seemingly spontaneous $40,000 that popped up on another borrower's bill. The only clue to the riddle was Litton's description of the sum as other fees due. When that amount appeared on her bill, according to the adjudicator's decision, the borrower asked her lawyer to write to Litton, seeking an explanation. Litton's response was to send a letter directly to the borrower saying her lawyer was not authorized to represent her. (Naturally, since Litton did not believe the woman's lawyer was allowed to represent her, the lawyer did not receive a copy of that letter.) The adjudicator found that Litton violated state and federal laws mandating that borrowers receive accurate statements and answers to questions about their bills. He ordered Litton to pay the borrower $31,000, the bulk of which was for suffering. The decision was later dismissed and the parties settled out of court. It's not surprising that these problems were revealed after the borrower filed for bankruptcy, which is often the only chance a person has to save his home from foreclosure. Between January 2002 and April 2007, more than 5,000 Litton customers in Texas have filed for bankruptcy. When Litton fired Murray, the company offered her a $6,000 severance package if she signed an agreement stating she would not sue or otherwise complain to a third party. Since Litton claims to spend about $50,000 on a typical foreclosure, the company was prepared to spend upwards of $56,000 to fire a borrower who owed $4,000. (Murray declined the severance package). Larry Jr. said he could not discuss Murray's case, and when he was asked if it was company policy to fire employees who were also serviced by Litton, he said, Do you want employees...who are having their own difficulties counseling consumers that have difficulties...? (Technically, Murray did not counsel consumers; she was a researcher.) 35However, Larry Jr. said he understands that Litton employees often deal with borrowers experiencing a crisis, and the employees are sensitive to that. There's no excuse for bad service, he says. We don't have an obligation to give [borrowers] an answer they like every time. But we have an obligation to listen to the problem, try to develop a solution to the problem that's reasonable and then try to execute that. Yet there are bound to be borrowers who just won't budge. Sometimes people aren't interested in keeping their homes, or people have unreasonable expectations, he says. Unfortunately, we're not always able to accommodate those expectations. In her detailed complaint to the Better Business Bureau of Greater Houston, Murray says her supervisor was anything but sensitive. Over several private meetings, she wrote, her supervisor told her to shut up and, in one instance, asked Murray, How did you get the house? If that is to be believed, it would appear that a Litton superior has no understanding of the predatory loans that critics and federal agencies have said make up a significant amount of loans serviced by his very own company. According to Larry Jr., there are just plain bitter borrowers who blame Litton for their own irresponsibility. Ostensibly, these are the kind of borrowers attempting the class action suit filed in California in 2005. The suit alleges violations of the Real Estate Settlement Procedures Act and unjust enrichment, among others. The suit alleges that Litton has engaged in a scheme by which it fails to accurately service its borrowers' loans and then falsely claims that the borrower is in default and collects unwarranted fees from its customers. Specifically, the alleged scheme includes misapplying or failing to apply payments, prematurely referring accounts to collection, and forcing insurance policies on homes that are already insured. (The attorneys who filed the suit did not return multiple Press calls seeking examples of evidence the attorneys had to support these claims. The attorneys haven't said how many plaintiffs they have, and the judge in the case hasn't yet ruled on if there are enough for a class action.) In an unrelated action, the Federal Trade Commission and HUD accused Salt Lake City-based servicer Fairbanks Capital Corp. of similar actions in 2003. Without admitting any wrongdoing, Fairbanks agreed to pay $40 million into a trust for borrowers that the government agencies said were victims of fraud. Fairbanks' founder and CEO also agreed to pay $400,000. Fairbanks now conducts business as Select Portfolio Servicing. While Larry Jr. says the Fairbanks case was the exception, not the rule, in the servicing industry, the industry has its fair share of critics. 36John Ventura, a former private attorney who heads the Texas Consumer Complaint Center at the University of Houston's School of Law, has experience trying cases against Litton. I didn't find any evidence of outright fraud, he says. What I found was that their systems, and the employees that worked those systems, just did not do a very good job. And accounts were messed up, payments were not properly credited or escrow accounts were messed up, and because of those things, it became a problem for the consumer that they found almost impossible to correct. He says servicers tend to think of foreclosed borrowers as collateral damage that ultimately does not harm the bottom line. It's just inherent, I think, in mortgage servicers, that in order to be profitable for their investors and everything, they have to hire people that may not be all that competent and their systems may not be set up to really be able to tend to the individual needs of a particular homeowner, he says. When told that Litton claims to have saved 70,000 homeowners from foreclosure last year, Ventura says, I guess the next question would be: Why were there 70,000 homes...that needed saving' Is there something wrong with the way these loans were set up that just from inception makes them not workable? Doesn't it strike you as strange that somebody would have to save 70,000 homes? Ventura's boss, consumer attorney Richard Alderman, says that servicers are just following their part in a scripted ruse against naive borrowers. More and more, we're allowing businesses to do whatever they want and then just saying, well, you poor idiot, why didn't you protect yourself?' He likens subprime lending and servicing to the tin man scam. That was the scam of the '50s and '60s, selling aluminum siding to people who couldn't protect themselves, who a slick salesperson knew could con them into buying something they didn't need and then taking their house if they didn't pay, he says. And we didn't have a problem deciding that this process was bad...that people were being taken advantage of...and we did something about it. But I think the world has changed where now I'm afraid what we would've said is, you know, Too bad, you shouldn't let people con you into that, and if you lose your house, well, you can always rent an apartment somewhere.' However, there are situations where the person not the loan is to blame, says Williams, who brokered Murray's loan. Unlike the naive borrowers who are sitting ducks for predatory lenders, Murray worked in the industry and knew exactly what she was getting herself into, Williams says. Moreover, servicers like Litton regularly give distressed borrowers multiple chances to catch up. There are examples of real victims who warrant a news story, she says. 37As for Murray, Williams says: She knew better. In April, Federal Reserve and other federal bank regulators asked lenders to take extra measures to help borrowers locked into subprime loans. In response, the heads of mortgage giants Fannie Mae and Freddie Mac said they would help these borrowers refinance their loans. Fannie May CEO Daniel Mudd said the institution would extend loan terms from the current maximum of 30 years to 40 years. Freddie Mac CEO Richard Syron announced plans to buy approximately $20 billion of subprime loans, and lender Washington Mutual said it would refinance $2 billion in loans, switching some adjustable rate mortgages into 30-year fixed rate loans. Murray and her family moved out of their home last week. She says she and her husband are staying with her father, while the kids are crashing with friends. It's not perfect, but it's better than before, as the family struggled to make arrangements by the move-out deadline. I'm in limbo, Murray had said then. Unfortunately, she was not one of the 70,000 borrowers Litton claims to have recently saved. There's a lot of people out there who have homes because of the great work [of] our 1,500 people here that believe in what they do every day, Larry Jr. says. I wish I could help everybody. 38Company: Li t t on Loan Se r vi c e Addr e s s 2 LOOP CENTRAL DR. Ci t y: HOUSTON St at e : T i p: Count r y: UNI TED STATES Emai l : URL: . LI TTONLOAN. COM Phone : 00 27- 727 FTC COMPLAINTS AGAINST LITTON 04/12/2006 LLNCH Transaction Ref No. : 8020247 Cont ac t Type : Compl ai nt s our c e : c ons ume r TCS Comme nt s : Pr oduc t Name : HOME LOAN THE COMPAN HAS ME LATE FOR OVER A EAR FOR SI T DAS I HAVE SI GNED A CONTRACT HI CH CHANGED M PAMENT DATE BUT I AMSTI LL BEI NG NOTED FOR BEI NG OVER SI T DAS LATE I TH THE AMOUNT THAT I OE BEI NG OVER SI THOUSAND DOLLARS.