Bank of America, Brian T. Moynihan, and another collection agency

The end is in sight -- but there is a sickening and outrageous final twist that threatens to undo it all.

Bank of America's credit card department had promised that they would reach a reasonable settlement on a credit card debt owed by the owner of the short sale house. But I needed to get the other liens discharged first.

After two months of diligently and successfully negotiating to have the liens discharged, we go back to Bank of America's credit card department with the documents from the other lien holders. And we are told, callously and with no explanation, that the debt "has been placed with an outside agency."

What that means is that they have included this credit card debt in a bundle of loans that they've turned over to a highly disreputable debt collector, one of the sleazy, fly-by-night "law firms" that do the dirty work for supposedly legitimate (taxpayer-supported) institutions such as Bank of America.

This is a devastating setback. I had come to place my trust in Bank of America, because they at least have a mechanism in place that allows consumers to bring problems to a team of customer service reps who work in "the office of the chairman and chief executive." I've been working with one of those reps, and have come to trust him.

But when this crisis hit yesterday, he was nowhere to be found. It seemed that no one with a conscience or a brain was on call.

I still have faith that this will be resolved. I dashed off a letter to Brian T. Moynihan, president and CEO, both via email and Fed Ex. I'm hoping that Monday will bring better news.


Here is the open letter to Moynihan, with some details omitted:

Brian Moynihan
Chief Executive Officer
Bank of America
100 N. Tryon Street
Mail Code NC-1-007-18-01
Charlotte, NC 28255 March 5, 2010

Dear Mr. Moynihan:

I am writing to call your attention to a serious breakdown in the management oversight at Bank of America, a breakdown that involves one division of the company working against another.

This issue is detrimental to the interests of your shareholders -- and in addition, is a troubling example of how financial institutions can engage in socially irresponsible practices that promote home foreclosures.

In this case, the foreclosure that is being forced will result in a loss of revenue to the bank and to the underlying investor in the loan. Unfortunately, this is the second time I've written to you about this matter. After I first contacted you on January 7, the matter was taken up by the customer service team in the office of the CEO, and appeared to be on the route to be equitably resolved. Today I learned that these efforts to resolve the matter have been undone.

The situation, specifically, is this:

-- I have a contract to buy a house that is destined to be foreclosed. Bank of America is the servicer of the first mortgage. The short sale is at appraised market, and Bank of America has approved the short sale.
-- A division of Bank of America, FIA Card Services, has placed a lien on the house for an unpaid balance by the current owner.
-- In order to close on the house, I have requested a lien discharge from FIA Card Services. After I first contacted you, a representative of FIA, and a representative from the executive offices, stated to me and my attorney that if we were able to obtain lien discharges from the other lien holders on the property, that Bank of America would release the lien or at the very least accept the same terms offered to the other lien holders. We have obtained lien discharges from the IRS, NY State, Allpoints Capital and GMAC (servicer of the second mortgage). However, when we contacted the credit card division yesterday, we were told that the debt has been placed "with an outside agency."
-- We had taken it on good faith that Bank of America would honor the agreement made by the credit card division and others at BofA, and we have invested a good deal of our resources to satisfy the bank's requirements for a discharge of the lien. It appears that the bank has abrogated that agreement.

It is widely acknowledged that foreclosures promote neighborhood deterioration and further destroy home values. It is national policy to work to prevent foreclosure, and I'm sure it is the publicly stated position of the Bank of America that foreclosure should be averted if possible. I hope you will help me resolve this matter in a way that will best serve both your shareholders and the public interest.

I have written to you in hope that your office can intervene constructively in the case. I would prefer to resolve this by working cooperatively with Bank of America, rather than to escalate my grievance.

Just Coasting, But Time Relentlessly Marches On

We are getting close, but nothing is happening.

Where it stands now? Waiting to hear from Bank of America if their investor, Capital One, is willing to meet the unreasonable demands of second mortgage servicer GMAC, representing their investor Deutsche Bank.

I don't even remember if I've ever blogged about this before.

But apparently it's pretty typical in a short sale for there to be more than one mortgage on a property, the first mortgage, and then, usually, a second mortgage or home equity line of credit (HELOC).

Now GMAC/DB should really just sign off and say: OK, we lose, Bank of America gets all the dough. After all, GMAC/DB would get bupkis in a foreclosure. Not to mention the fact that GMAC got billions from the government and DB participated in the AIG bailout, and we're in a national emergency, and it's not supposed to be business as usual, and that any patriotic banker is now supposed to be actually trying to avoid precipitating foreclosures.

Dream on.

But instead, it seems, that GMAC and BofA are playing chicken, and I'm the worm caught in between. GMAC will only take $X. BofA only offered $Y. GMAC counters with $Z. Now BofA has to see if CapOne will take $Z. And that's been another week of waiting.

GMAC should probably be burned at the stake for trying to extract $Z. There are some federal guidelines about this (see HAFA below), which clearly state that second lien holders are only entitled to $3,000.

Well let me tell you, $Z > $3,0000.

And I'm the schmo here. Because when GMAC wants $Z and BofA is only willing to offer $Y, guess who's going to make up the difference.

But I promise, I'm going to hire a blues band and have a party in my basement on the day I move in.

An Open Letter to Rich Fairbank, CEO Capital One

Mr. Richard D. Fairbank
President & CEO
Capital One Financial Corp
1680 Capital One Drive
McLean, VA 22102

Mr. Fairbank:

I am writing to call your attention to a position being taken on behalf of Capital One that could lead to a completely avoidable home foreclosure, a transaction that would not be in the best interests of your shareholders or the financial entities you represent with this mortgage. In this matter, Capital One is being represented by Bank of America as the investor in a first mortgage on a home that is involved in a short sale transaction with Bank of America.

There is no equity in the home and the owners have fallen deeply into financial ruin. Unfortunately, GMAC (as representative of Deutsche Bank and mortgage investors) holds a second mortgage on the property. GMAC is asking for a share of the short sale proceeds in exchange for releasing the lien. I'm caught in the middle, and don't feel I am in a strong position to mediate a fair settlement between two huge financial institutions.

The situation is this:-- I have a contract to buy a house that is destined to be foreclosed. Bank of America is the servicer of the first mortgage. GMAC is servicing a HELOC on the property, which they say is a loan owned by Deutsche Bank.

Unfortunately, GMAC will not accept BofA's offer to settle their lien. Both the first and the second mortgage were originated on the same day as part of the same refinancing in 2005 through now defunct Greenpoint. I contacted Seth Waugh, head of DB in the US, and there was a fast and constructive response. At the direction of his office, GMAC reduced its payoff demand. There's an indication that through the intervention of his office, further compromise is possible.

I have no opinion as to the merit of GMAC's claim -- all I know is that given the current national climate, I would hope that Bank of America and Capitol One could find a way to reach a compromise agreement on this short sale.

Capital One would certainly suffer a much larger loss if there is a foreclosure. In addition to the BofA first mortgage lien, there are liens from the IRS and NY State. Both tax authorities have indicated that they are willing to discharge the lien for a short sale.

It is widely acknowledged that foreclosures promote neighborhood deterioration and further destroy home values. It is national policy to work to prevent foreclosure, and I'm sure it is the publicly stated position of Capital One that foreclosure should be averted if possible.

I hope you will help me resolve this matter in a way that will best serve both your shareholders and the public interest.

I have written to you in hope that your office can intervene constructively in the case. I would prefer to resolve this by working cooperatively with the financial institutions involved in this matter, rather than to escalate my grievance and bringing it to the attention of my congressmen, Senators, and regulatory officials at the Federal Reserve and Treasury Dept.

HAFA Loaf Better Than....

The Treasury Dept. snuck in some new regulations Nov. 20 that people seem to be waking up to.

It's called HAFA -- Home Affordable Foreclosure Alternatives. The regs apply to loans from participating servicers, but not Fannie or Freddie, which will issue separate regulations.

HAFA supposedly takes effect April 5. And I don't see any way in heck that these servicers have any chance whatsover of complying.

Take one of the most basic HAFA guidelines -- banks are required to get back to borrowers within 10 days of the submission of the short sale package. In my case, it took about two months, and that was only after a certain amount of wheel squeaking on my end. No way that's going to happen. I wonder what, if any, penalty can be imposed on banks that take longer than 10 days?

And here's another provision of interest, at least to me. HAFA limits the payment that can go to junior lien holders, i.e. second mortgages. The HAFA regs impose of cap of $3000 in payments to second lien holders. That means big losses for holders of the seconds. Base on my recent experience, this too ain't gonna happen. I wonder what happens to a bank that doesn't follow the HAFA guidelines? I skimmed the guidelines, but didn't see any mention of penalties.

If you want to drill down and read the HAFA document yourself, it's here.

Short Sale National Data

Some interesting short sale statistics from a site called Housing Predictor:

• Less than one percent of the homes at risk for foreclosure are approved by banks for short sales.
• Only 40,000 short sales were completed nationwide in the first half of 2009.
• Only 8-12 percent of the homeowners who initiate a short sale actually succeed.
• Major banks claim they have added staff to handle the increased volume of customer inquiries about short sales.
  
• JP Morgan Chase says it has hired 5000 new employees to handle the flood of calls.
• Bank of America, which services 14 million mortgages, says it has also invested in building capacity, but the bank is reportedly under fire for outsourcing much of the call center work to India. (I think this may be a spurious allegation -- I haven't ever been connected to an Indian call center during seven months of dealing with BofA).
  

Not Alone: Many Face Issue of Second Liens -- Even Alleged Fraud!

Sometimes I think I'm crazy, betting sucked into this short sale deal, putting so much time into it, letting it become an obsession, and experiencing outrage at what's going on here on the fringes of the subprime meltdown.

But tonight I read that this situation with lien holders putting the squeeze on short sale buyers is pervasive -- potentially turning into yet another banking scandal. It might sound esoteric, but this may be happening in thousands and thousands of desperate deals being struck around the country.

According to Diana Olick, writing on the CNBC site (here), there are allegations that major banks, when they are holding second liens, are pressuring short sale buyers into making illicit payments that won't show up on the official HUD-1 closing document. And apparently this is illegal.

The alleged malefactors include CitiMortgage, JP Morgan and Bank of America.

I'm not surprised.

HAIL TO THE IRS!

You would never think that the IRS would be one of the good guys in this story.

Playing against type, they've been gentlemanly, open, responsive.

New York State has also been easy to deal with.

Why are the private sector bureaucracies we are dealing with so poorly run? I guess executive compensation takes priority over investing in the people and resources necessary to provide decent customer service.

By the way, many people seem surprised when you tell them that it is possible to get the IRS to discharge a lien in a short sale. This is thanks to the agency's scintillating Publication 783. Don't forget to send you request for tax lien discharge to the right IRS office! For that info, I recommend IRS publication 4235.