By Mike Appleton, Weekend Contributor
“Corporation, n. An ingenious device for obtaining individual profit without individual responsibility.”
-Ambrose Bierce, “The Unabridged Devil’s Dictionary”
I have frequently criticized media coverage of legal issues. For example, news reports often attribute significance to orders on routine procedural motions that is wholly unwarranted. And even reporters with legal backgrounds are not clear and understandable in their explanation of court rulings to laypersons. So when I came across reports that Treasury Secretary-designate Steven Mnuchin’s bank had filed a mortgage foreclosure action against a 90 year old Florida widow over 27 cents, I was skeptical.
But the story interested me because the subject of the suit resides in Polk County, only an hour’s drive from where I live. In addition, with the advent of electronic filing in court proceedings, I knew that I could access the court files online and review the actual record in the case. I have now done so and have concluded that the stories have been misleading, but not for the reasons one might expect. What has happened to Ms. Ossie Lofton of Lakeland, Florida is worse than what has been reported.
Ms. Lofton has lived in the same home for over 40 years. In 2003 she and her late husband, Willie Lofton, borrowed money secured by what is known as a “reverse mortgage,” essentially a line of credit designed to permit elderly persons to draw against the equity in their homes to help with living expenses. Unlike a standard mortgage, a reverse mortgage does not require periodic principal and interest payments. Instead, the credit line balance typically falls due upon the death of the surviving spouse. However, the lender may demand payment of the outstanding balance earlier should a borrower cease to reside on the property, sell the property to a third party or fail to timely pay real estate taxes or homeowner’s insurance premiums.
The Loftons’ lender was Financial Freedom Senior Funding Corporation, a reverse mortgage subsidiary of Lehman Brothers Bank. Financial Freedom was ultimately acquired by OneWest Bank, an entity formed by Steven Mnuchin and other investors to acquire the assets of IndyMac, a failed lender, from the FDIC in 2009. In November of 2014, OneWest Bank filed a foreclosure action against Ms. Lofton to recover $127,657.13. The asserted ground was that Ms. Lofton was no longer occupying the home as her residence. After the suit was filed, a call from Ms. Lofton’s son to the bank’s lawyers was sufficient to correct their misunderstanding and the suit was immediately dismissed, with “each party to bear its own fees and costs.” The bank nevertheless added property inspection fees and its attorney’s fees to the amounts owed by Ms. Lofton, an example of overreaching which would have been prevented had Ms. Lofton been represented by counsel. OneWest Bank, N.A. v. Ossie D. Lofton, et al., case number 2014-CA-004708 (Polk County, Florida Circuit Court).
But Ms. Lofton’s difficulties with the bank were far from over. In April of 2016, a second foreclosure was filed. This time the named plaintiff was CIT Bank, with whom OneWest Bank had merged the previous year. The asserted default was “failing to maintain property insurance.” By this time, the principal balance demanded had arisen to $134,728.57. Attached as an exhibit to the complaint was a copy of a OneWest Bank acceleration letter to Ms. Lofton dated June 9, 2014 stating that the loan had been declared “due and payable because of your failure to occupy the property.” Another exhibit to the complaint indicated a default date of October 18, 2011. Confused yet? Fortunately, someone directed Ms. Lofton to the lawyers of Florida Rural Legal Services, Inc. What they discovered was a pattern of abuse, indifference and arrogance.
It appears that sometime in 2011, Ms. Lofton either failed to pay a homeowner’s insurance premium or made a payment that was not properly credited. In any event, OneWest Bank purchased coverage for $1,883.30. This is known as “force placing” and results in a property charge which a borrower is obligated to repay. Yet in this instance, Ms. Lofton was not billed for the charge; it was recorded on the bank’s books (and in its monthly statements to Ms. Lofton) as a loan advance (i.e., an additional draw against the credit line). The bank apparently received a repayment of $1,460.00 of this amount from its insurance company, recording it as a prepayment of the credit line balance, leaving a net credit line advance of $423.30.
At some later date and for unknown reasons, the bank determined that the $423.30 should be characterized as a charge rather than an advance. Accordingly, it sent Ms. Lofton a letter in March of 2015 informing her that her loan was in default and demanding immediate payment of $423.30. She promptly sent her check for $423.00, inadvertently failing to include $.30. A second letter to her in August of 2015 demanded payment of the additional $.30 to avoid foreclosure. Given her advanced age and poor eyesight, Ms. Lofton misread the demand and mailed another check for $.03, leaving the now legendary $.27 balance and inducing the new foreclosure action for “failing to maintain property insurance.”
Faced with an aggressive defense and numerous counterclaims, attorneys for the bank attempted to take a voluntary dismissal “with each party to bear its own fees and costs,” a peculiar filing since a dismissal of a complaint does not affect a counterclaim in the absence of a stipulation between the parties. As of this writing the bank has brought in additional counsel to contest the counterclaim and denies any liability for attorney’s fees for Ms. Lofton’s defense. The litigation continues. CIT Bank, N.A. v. Ossie Lofton, 2016-CA-001327 (Polk County, Florida Circuit Court).
Were this an isolated incident, one might simply dismiss the matter as an example of bad bookkeeping combined with bad lawyering. But OneWest Bank under Steven Mnuchin developed a reputation for its passionate pursuit of foreclosures against the weakest and most defenseless social groups. By way of example, Financial Freedom controlled approximately 17% of the reverse mortgage market at one time, but accounted for almost 40% of the foreclosures in that market subsequent to its acquisition by OneWest Bank. And an investigation by the California Attorney General’s office disclosed evidence of “widespread misconduct,” including statutory violations and illegal backdating of mortgage instruments.
Mr. Mnuchin’s bank reportedly has earned over three billion dollars in profits on an investment of 1.6 billion. Its surviving merger partner is due to receive over two billion in additional payments from the FDIC toward foreclosure costs. How much of that profit has been derived from practices similar to those in the Lofton case is anybody’s guess. One hopes at least some of these issues will be addressed in Mr. Mnuchin’s confirmation hearing because while there is certainly a role for vulture investors in cleaning up bad paper and restoring stability in the real estate market, those benefits become secondary when the vultures treat human beings as so much carrion.
Sources: Jeff Spross, “Why Steven Mnuchin’s confirmation hearing could be truly disastrous for Donald Trump,” The Week (January 5, 2017); David Dayen, “Treasury Nominee Steve Mnuchin’s Bank Accused of ‘Widespread Misconduct’ in Leaked Memo,” The Intercept (January 3, 2017; Lorraine Woellert, “Trump Treasury pick made millions after his bank foreclosed on homeowners,” Politico (December 1, 2016); David Dayen, “Donald Trump’s Finance Chair Is the Anti-Populist From Hell,” New Republic (May 9, 2016); “The Troubled OneWest and CIT Group Merger,” https://badbankmerger.com/2016/03/09/cit-group .
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