WaMu, Countrywide Legacy Lives on for Homeowners

Want to be considered for a loan modification? Stop making your mortgage payments. That's the advice that Washington Mutual gave some homeowners who called looking for help with their mortgage payments. Their reward for complying with that advice? Foreclosure.

Some homeowners are now suing JPMorgan Chase, which swallowed up WaMu in a government-brokered deal in September, 2008. The case comes in the wake of Senate hearings on WaMu's unscrupulous practices and bolsters the view that some banks have run roughshod over consumers. Similar scenarios also unfolded at other banks, including Countrywide Financial, now owned by Bank of America, which are also the targets of lawsuits.

"The majority of the banks are requiring people to fall behind before they can get a loan mod," attorney Piotr Reysner of Reysner Law Office in Sacramento, told HousingWatch. "It puts people in a very difficult position."

Faiz and Khadua Jahani are suing JPMorgan Chase for fraud, breach of contract, predatory lending and other charges, according to a lawsuit HousingWatch downloaded from Courthouse News Service.

Reysner, who represents the Jahanis, says he has five other cases that are playing out the same way. "They are almost identical cases against CitiMortgage, Green Tree Mortgage and Bank of America from when it was Countrywide Financial," said Reysner. Chase and BofA are left with a mess on their hands after acquiring two of the most notorious subprime players. Bank of America, noted Reysner, is simply trying to clean up Countrywide's problems. "I commend them. They are doing a good job," he said.

Reynser says he has been playing phone tag with Chase regarding the Jahanis, but he believes the bank is looking to settle out of court. Banks, he said, are well aware of what he called "a massive disconnect" between the different departments at the banks, which leads to these sorts of problems. The foreclosure unit doesn't know what the loan mod unit is up to, and vice versa.

"I see a lot of bankruptcy judges just yell at the banks. The foreclosure department is quick to foreclose and the loan mod department keeps losing paperwork," he says.

The Jahanis' experience, according to their lawsuit and their lawyer, appears to be a case in point:

The Jahanis, who owe JPMorgan Chase approximately $360,000 on an Elk Grove, Ca. property that they purchased in June 2001, telephoned the bank's toll free number in December 2008 to discuss a loan mod because they were having trouble paying their mortgage -- just a few months after WaMu had been acquired by JPMorgan Chase. They were told by a representative that the bank would not help them since they were not in breach of their loan terms. They were then "specifically advised at that time to stop making payments for a period of three months, at which time [the bank] would consider a loan modification," according to court documents.

As a result of what they took to be reasonable advice, the Jahanis stopped paying their mortgage and the delinquencies were immediately reported to credit reporting agencies -- Equifax, Experian and TransUnion. (Yes, loan mods will screw up your credit score, as HousingWatch has written here.) The Jahanis re-applied for the loan mod in early 2009. In June, they received a congratulatory letter that they had been entered into the loan modification program.

Their elation was short-lived, however. At the end of June, they received a "Notice of Intent to Foreclose." The reason? A past due bill for $100.65. (That's right, there are no missing zeros.) The letter informed them that they could ward off the foreclosure by bringing the account current. So the Jahanis paid the $100 and change as well as their new lower, loan mod payment of $1,240, and continued to make all of their new loan payments.

From that day forward a series of letters arrived to the Jahani household requesting other documents. The Jahanis complied, but the bank said they were never received. What followed were harassing letters of foreclosure intents or statements that the home did foreclose; raps on the front door from interested buyers; and even an auction of the house. All the while the Jahanis were living in the home and being told by the bank that there was an error, that their home was not really in foreclosure.

At one point, the Jahanis say, they made a follow-up call to the bank and were told to disregard the letters because the bank "had in fact received all necessary documentation." Another time they had even been told that the house "had not been foreclosed and that the people who were approaching the property were doing so illegally."

Yet, foreclosure proceedings are being scheduled to this day. "We are in the process of asking them to stop all foreclosing proceedings. That will be filed next week," Reysner told HousingWatch.

How can homeowners avoid this situation? Patience, says Reysner. He also offers these tips for homeowners looking for loan mods:
  • Apply through Obama's Making Home Affordable Program.
  • Do not hire any other company who promises to negotiate a loan modification with your lender on your behalf. You are simply wasting your money. Do it yourself. You can get a better deal.
  • Do not get discouraged. Banks will claim to lose your paperwork. Just keep plugging along. It is going to be frustrating no matter what.
  • Do not use an attorney. People should be trying to do this themselves without attorneys. You can get a better loan mod yourself. Attorneys, he noted, tend to be abrasive.