Foreclosure Calculations Under Scrutiny: Lenders Shift Tactics After Legal Challenge
A growing body of evidence suggests a concerning practice within New York’s foreclosure system: lenders and their legal representatives are altering how they calculate interest owed on mortgages,and appear to be doing so after being challenged in court. Investigations by Gothamist and New York Focus reveal a pattern of shifting calculations that demonstrably benefits lenders at the expense of homeowners facing foreclosure. This article delves into the details, explaining the issue, the legal basis for the challenge, and the observed changes in behavior by key law firms.
The Core Issue: How is Interest Calculated?
The crux of the problem lies in how interest is calculated on outstanding mortgage debt. New York State law is clear: interest should be based on the unpaid principal balance of the loan. However, some lenders have been using the judgment amount - a larger figure that includes accumulated fees and costs – as the basis for interest calculations. This seemingly small difference can translate into thousands of dollars in inflated debt for homeowners.
A Referee’s Stand: one Lawyer’s Revelation
The issue came to light through the experience of attorney Ravi Cattry, a court-appointed referee overseeing foreclosure auctions. During her first assignment,she reviewed a report prepared by LOGS Legal,representing Nationstar Mortgage.
* Cattry discovered the firm was calculating interest using the judgment amount, resulting in a $37,600 overcharge for the borrower.
* She immediately flagged the discrepancy, citing a 2015 state appellate court ruling explicitly mandating the use of the unpaid principal balance.
* Faced with this challenge, the lender’s attorney conceded and allowed Cattry to submit a corrected report reflecting the accurate amount owed.
This case highlights a critical point: the calculation method isn’t simply a technicality. It directly impacts the financial burden on homeowners fighting to keep their homes.
A Pattern Emerges: Law Firms Change Course
The Gothamist/New York Focus investigation didn’t stop with a single case. A review of foreclosure reports revealed a meaningful shift in calculation methods by several prominent law firms following a lawsuit filed by a homeowner, Anderson, in April.
Hear’s a breakdown of the observed changes:
* Frenkel Lambert: Prior to Anderson’s lawsuit, this firm consistently used the judgment amount in over 1,600 post-auction reports. In the four months following the lawsuit,they began calculating interest on the principal balance over 60% of the time.
* Roach & Lin, David A. Gallo and Associates, and Greenspoon Marder: These firms, not directly involved in Anderson’s lawsuit, also dramatically altered their practices. They moved from routinely using the disadvantageous judgment amount calculation to consistently using the principal balance after the litigation began.
Why the Change?
The timing of these shifts strongly suggests a response to the legal challenge. While none of the firms responded to requests for comment, the correlation is undeniable. It raises serious questions about whether these firms were previously aware of the legal requirements and deliberately chose to employ a method that benefited their clients – and increased their own fees – at the expense of homeowners.
What Does This mean for Homeowners?
This practice has significant implications for homeowners facing foreclosure:
* Inflated Debt: Incorrect calculations lead to homeowners being told they owe more than they actually do.
* Hindered Negotiations: An inflated debt makes it harder to negotiate loan modifications or settlements.
* Unjust Enrichment: Lenders profit from inaccurate calculations, potentially leading to wrongful foreclosures.
The Importance of Scrutiny and Legal recourse
The findings underscore the need for increased scrutiny of foreclosure practices and robust legal representation for homeowners. It’s crucial for borrowers to:
* Review foreclosure paperwork carefully.
* Question any discrepancies in calculations.
* Seek legal counsel from an attorney experienced in foreclosure defense.
This situation highlights a systemic issue within the foreclosure process. While the legal basis for accurate calculation is clear, the apparent willingness of lenders and their attorneys to exploit loopholes demands further investigation and potential regulatory action.
Resources:
* Referee’s Report (Auction Document)
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