Home lenders and their partners have been cheating New Yorkers by inflating what they owed on home equity loans that fell into foreclosure, according to lawsuits filed Thursday.
The systematic miscalculations diverted thousands of dollars from people who fell behind on loans, homeowners said in documents filed in federal court in Brooklyn, New York. The discrepancies allegedly stem from improperly charging compound interest instead of simple interest for the time span from when lenders ask the court to authorize a sale and when the motion is granted.
Defendants named in the cases, which seek class-action status, include units of Fannie Mae, Deutsche Bank AG and the Bank of New York Mellon Corp., along with Mr. Cooper Group Inc. and Shellpoint Mortgage Servicing, which help lenders collect payments and handle foreclosures. The list also includes the State of New York Mortgage Agency, a public benefit corporation that offers low-interest loans to first-time home buyers.
"Countless mortgage holders were deprived of surplus funds as a result of the collective failures by foreclosing banks, loan servicing agents and their attorneys," according to a statement from Mark Anderson, a partner at law firm Anderson, Bowman, Wallshein, which filed the suits.
Service penalties
The cases echo complaints that arose against the industry after the financial crisis of 2008, when U.S. homeowners fell behind on hundreds of thousands of home loans. Lenders and servicers wound up paying hundreds of millions of dollars to compensate customers for various missteps.
Other defendants in the cases filed Thursday included five law firms and MTGLQ Investors LP, which specializes in buying pools of soured home loans.
Deutsche Bank served as a trustee for a residential mortgage-backed security that held the loan, according to the company. "Loan-level matters, including foreclosure actions and subsequent purchases or sales of properties, are handled exclusively by mortgage loan servicers," a Deutsche Bank spokesperson said. A representative for BNY said its role was similar, with no responsibility for the foreclosure process.
A spokesperson for Goldman Sachs Group Inc., which owns MTGLQ, and representatives for Shellpoint and law firm Eckert Seamans declined to comment. The rest of the defendants didn't immediately respond to messages.
Lower price
One of the cases cites Sheila Bidar, a class representative for one of the lawsuits filed against Deutsche Bank, Eckert Seamans and mortgage servicer Select Portfolio Servicing Inc. In that instance, the extra interest amounted to more than $13,300, according to Anderson.
Bidar is the legal guardian for her 89-year-old mother, Ruth Athill, whose home was foreclosed. During the court-ordered auction in May 2023, she allegedly suffered an additional blow when the successful bidder initially offered $785,000 for Athill's home — and then assigned the bid to Athill's lender, Deutsche Bank. The home ultimately sold for just $207,071, according to Bidar's complaint.
The balance on her loan was only $167,773, court papers show. The lower sale price and inflated interest totals about $591,000 that Athill should have received, according to Anderson.
"She's lost out on so much. It's really heartbreaking," Bidar said in an interview.
