For nearly a year, Lori and Mark Pestana of Boston desperately tried to modify their home loan in hopes of avoiding foreclosure and eventual eviction. The Pestanas maintain that Washington Mutual ignored their mortgage-modification application and numerous attempts to contact bank officials by phone. In the end, the bank filed a foreclosure action.
Now the Pestanas are fighting back in court.
Will the fight be worth it?
For the Pestanas, and for thousands of other families in similar straits, the odds of succeeding in court are not very promising. That hasn't stopped folks from suing. Lawsuits against the mortgage industry began to skyrocket in 2007, when foreclosures began to increase. Claims of fraud, discrimination and predatory lending have been brought by players ranging from individual homeowners to wealthy shareholders and state attorneys general.
Suits against real-estate agents and appraisers have also been on the rise, though to a lesser extent than those against the mortgage companies, experts say.
Keith Gumbinger, a vice president at HSH Associates, a mortgage-information publisher in Pompton Plains, N.J., believes we're seeing only the beginning of a huge wave of mortgage- and real-estate-related lawsuits. He is skeptical about the merits of the suits.
Though Gumbinger believes some people filing suit were in fact victims of predatory lending, he thinks many others have only themselves to blame for their predicaments.
"Some people involved in these lawsuits may have self-inflicted wounds," Gumbinger says. "Borrowers who don't read documents or don't have someone to help them understand the documents can't absolve themselves of responsibility."
Kevin Costello, an attorney with Roddy Klein & Ryan, a Boston law firm, and one of the lawyers representing the Pestanas, says the couple filed their lawsuit in August. Washington Mutual, which was seized by the FDIC in September and then sold to JP Morgan Chase, has responded by denying the claims in the complaint, but it did stop eviction proceedings against the Pestanas.
The lawsuit maintains Washington Mutual went back on its promise to "effectively and comprehensively review their modification application" and that the Pestanas' paperwork got lost in a bureaucratic "morass" until the foreclosure action was filed.
This type of problem isn't unusual, according to lawyers, mortgage brokers and homeowners.
"The left hand often doesn't know what's going on with the right hand," Costello says. He and his clients allege that groups within Washington Mutual weren't communicating as they should have.