A duty to negotiate? Part 1: the story
Using a loan I borrow from you, I buy a house that I now cannot pay for. I fall into default, and you send me notices of default, but I want to renegotiate.
Are you obligated to negotiate with me?
Okay now, bank, let’s negotiate
That appears to be the premise behind litigation recently filed by Lori and Mark Pestana of
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.
I shall make several telephone calls on your behalf!
The cynical newspaper reader observes that these herculean efforts, as we shall see, occurred after the initial defaults – and that the defaults were apparently voluntary.
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.
So there’s the question: must the lender negotiate?
The suit is seeking class-action status on behalf of thousands of Washington Mutual borrowers in
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’d be surprised if lenders fail to accept payments, unless the payments come, as they sometimes do, with a self-serving note saying, “This check tendered in full payment of …” I have always understood that the lender can cash such a check, writing its own commentary editorial gloss, but perhaps that’s inaccurate.
“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.
Loan payments going down the drain?
A fixed-rate mortgage? Somewhere in here, my cynical mind then asked this question, How did the Globe get hold of this story? Not from WaMu, whose external communications department crafted this gem:
WaMu yesterday said it is “fully committed to helping our customers stay in their homes” and that “foreclosure is a last resort.”
How’s that for public communications?
In other words, WaMu said nothing.
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.
The Pestanas always had the option of paying their loan in full. ‘Resolve their problem’ has to be a code phrase for get relief short of making full payments on time.
From the scraps available in the story, I tried to determine if the Pestanas had followed AHI’s advice to delinquent borrowers:
When the servicer calls – or writes, or emails – all of her inquiries boil down to her search for the answer to two questions:
1. Why are you in trouble?
2. What’s the best way out?
The answer is, Sort of.
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.
Why did the Pestanas not do this? They apparently claim they thought something more favorable was on offer:
After reading on WaMu’s website that it would assist distressed borrowers with loan modifications, Lori Pestana [1] called and [2] was told they could not qualify until their payments were 50 days late. To become eligible, they [3] stopped paying and applied for help on Oct. 9, 2007.
Every picture tells a story?
Every workout request comes with a story attached. Stories are beguiling; something in human nature makes us dive critically into them, even if they are or may be entirely irrelevant. Whether by circumstance or by selective design (more on this below), as stories go, this is a good one – we were current until we defaulted because you told us to! – guaranteed to elicit instinctive sympathy.
Not everybody is sympathetic
Suspending for now the critical fourth question [Unmentioned, and being left as a temporary exercise for the reader – Ed.], I’ve put brackets around three key factual questions:
1. Whom did they call? Anyone who’s ever had a consumer complaint knows that telephoning is frustrating and unreliable. I’ve gotten into the habit of always asking each person I reach to give me their name and their phone number, because if you’re disconnected, you’re nowhere.
That Ms. Pestana says she called implies the Pestanas have no written record of their communication – a significant minus to their putative case.
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 foreclosure notice, obviously, was in writing.
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.
We all have personal experience with friends or business acquaintances who were supposed to do something they did not want to do, who tell us “I called half a dozen times,” yet when we check, the source says, “Nobody ever called me.”
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.
Perhaps the Pestanas have contemporaneous written notes. Probably not.
Something like this, of the right date, would help, wouldn’t it?
Do those actions sound herculean to you?
2. What were they told? A year ago, a study I recall reading found that something like 20% of all telephone answers the IRS gave inquiring taxpayers were wrong. Yet as the service repeats in all its administrative guidance and in every tax court filing, ignorance of the law is no excuse. It’s up to the taxpayer to file correctly, even if incorrectly advised.
Here even more questions arise. Who told the Pestanas? Was the statement [must be fifty days in arrears] accurate? Even if it was, were other conditions (e.g. default interest and penalties) attached to the loan modification offer?
Doubtless the Pestanas’ counsel will come armed for bear on these questions – still, there they are.
3. When they stopped paying, did they explain why? Evidently the Pestanas, who were current on their mortgage, voluntarily stopped making the payments. Unless more evidence is adduced, this is rock-brain dumb; the one thing you don’t do is cease paying your mortgage unless your lender has had plenty of notice that you intend to do so and has acquiesced – preferably in writing. As I put it back then:
Conclusion: keep your eyes on the prize. Although a lender is not your friend, neither is the lender your enemy. Loan servicers want to do something that’s good for the company, safe for themselves personally, and likely to work. They make these judgments based largely on statements you make and evidence you provide to support those statements.
They care about the answers to two questions:
Why are you in trouble? Whatever explanation you give, it had better be the truth.
What’s the best way forward? Your goal is to demonstrate that foreclosure, although administratively reliable, is a very risky financial path, whereas modifying with you, however it may sting, is reliable.
My problem with the Pestanas’ story as presented is lack of verifiability. The events presented are the actions they say they took a year ago – evidently, without any contemporaneous written communication from WaMu or the loan servicer.
In court, you also have to verify
Finally, there’s a fourth question, not explicitly mentioned but actually the most important of all:
[Continued tomorrow in Part 2.]
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