Colorado Bankruptcy News

WAMU Sued for Failing to Engage Debtor in Loan Modifications

Suit blames loan servicer for pending foreclosure By Kimberly Blanton, Globe Staff | August 5, 2008

A Boston-area couple who are in foreclosure, despite their herculean attempts to prevent it, have filed a lawsuit against Washington Mutual, one of the nation's largest mortgage servicing firms.

In the suit, filed in Suffolk Superior Court, Lori and Mark Pestana of Westford allege the loan servicer was unresponsive to their repeated phone calls and to their applications to negotiate an arrangement that would have allowed them keep their house out of foreclosure.

The suit is seeking class-action status on behalf of thousands of Washington Mutual borrowers in Massachusetts.

Their allegations echo those of other borrowers who dealt with customer service departments at major loan servicing firms. Loan servicing firms accept payments and handle mortgage duties on behalf of lenders or the Wall Street investors who hold the loans.

The firms, inundated with loan delinquencies and foreclosures, often don't respond to phone calls or letters and fail to accept late payments, renegotiate loans, or approve house sales that would avert foreclosures, some borrowers and agents have said.

"I feel like we were just sucked in and caught in a vortex that we couldn't get out of," Lori Pestana said about trying to prevent Washington Mutual, or WaMu, from foreclosing on a $275,000, fixed-rate mortgage.

WaMu yesterday said it is "fully committed to helping our customers stay in their homes" and that "foreclosure is a last resort."

The role of servicing firms in the rising tide of US foreclosures is a growing political issue as lawmakers realize the firms - and investors who purchased the mortgages in bundles - are logjams to resolving individual homeowners' situations and clearing up the housing crisis. WaMu is a lender as well as a servicing company.

US Representative Barney Frank, the Newton Democrat who is chairman of the House Financial Services Committee, recently asked servicers to explain their poor handling of loan modifications for borrowers trying to keep their homes.

Frank plans to send a letter today asking servicing firms to delay all foreclosures until Oct. 1, when a new federal program takes effect to help homeowners refinance their mortgages. That program will provide Federal Housing Administration guarantees to lenders willing to make up to $300 billion available to refinance struggling borrowers. Frank scheduled a Sept. 17 hearing to examine whether lenders have complied with his request for a delay.

In their lawsuit, the Pestanas are seeking damages for their tarnished credit and are trying to reverse their eviction and foreclosure. Their Boston lawyer, Gary Klein, said their eviction has been delayed until late August.

The suit, filed one week ago, indicates the Pestanas would not have gone into foreclosure if they had reached someone at WaMu with authority to resolve their problem.

After the couple missed their August 2007 payment, Mark Pestana, a human resources specialist, and Lori Pestana, a business consultant whose work had slowed, still felt they could get current on their loan. One option might have been dipping into retirement savings, they said.

After reading on WaMu's website that it would assist distressed borrowers with loan modifications, Lori Pestana called and was told they could not qualify until their payments were 50 days late. To become eligible, they stopped paying and applied for help on Oct. 9, 2007.

Although the Pestanas said they were told they would get an answer in four to five weeks, a Nov. 13 letter from the Boston law firm Harmon Law informed them they were in foreclosure. Harmon Law represented WaMu in the foreclosure, the suit said.

The Pestanas said they tried at least twice to determine the amount they could pay to reinstate their loan, but Harmon Law either did not call back or could not give them an amount. Another time, Harmon Law refused a $12,000 payment, because it was $3,000 short of the total payoff amount, the suit said.

Harmon, which was also named in the lawsuit but was not included in the class-action claims, declined to comment.

In January, Lori Pestana called WaMu again but was "caught up in an endless telephone loop," the suit said; she left a message but no one called her back.

WaMu and Harmon Law violated state law requiring them to bargain in good faith, Klein alleged.

Kimberly Blanton can be reached at blanton@globe.com.

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