After the nationwide disruption caused by the Mortgage Meltdown of 2007, the Financial Crisis of 2008, and the ensuing Foreclosure Crisis that continues to disenfranchise homeowners to this day, consumers want sound financial advice they know they can trust. McDonnell Property Analytics (“MPA”) is renowned for its integrity, effectiveness, and its extraordinary ability to present its findings in court.
Marie McDonnell, MPA’s Founder, began her study of real estate and mortgage financing in 1986 during the height of the Savings and Loans scandal. She immediately recognized that consumers were being steered into complex, alternative mortgage transactions that appeared to be affordable, but which contained hidden features and risk layers that doomed the transaction to fail. Marie observed that while consumers were required to pay for the bank’s attorney at closing, they had no independent financial analyst who could spot bait and switch schemes, predatory lending structures, and other unfair and deceptive acts and practices which left them vulnerable to exploitation by rogue lenders.
Marie noticed that while the real estate and mortgage banking industries are geared to help consumers navigate the mortgage loan origination process, there is no organized branch of the financial services industry that supports consumers as they confront problems that arise over the months and years that the mortgage loan is actively being serviced…usually by a non-party to the transaction.
Some of the problems that crop up can cause serious issues, for example:
- An unexpected transfer in servicing rights may result in a lost or delayed payment which the new servicer will recognize as a default.
- Often, documents and data do not board accurately and completely onto a new servicing platform when technology is updated, or servicing is transferred.
- The servicer may make a mistake in adjusting interest rate and monthly payment changes thereby breaching the mortgage contract.
- The servicer may err in calculating the amount due for escrow which may cause an erroneous shortage that can cause “payment shock.”
- The servicer may improperly advance a real estate tax payment or impose force placed insurance even though the borrower is current on their escrow obligations.
- If, during a dispute, the consumer withholds an escrow payment, the servicer will place the note payment in a suspense account which will trigger a default.
- Once a default is declared, the servicer can impose late charges, property inspection fees, broker price opinions fees, etc. and refuse to accept any further installment payments from the borrower until all arrearages and fees are paid.
- Servicers frequently fail to zero out escrow advances in Chapter 13 bankruptcies which results in a double-billing in violation of the Bankruptcy Code.
MPA’s audits of thousands of loans across the country reveal that mortgage servicing abuse in escrow accounts is the number one problem facing homeowners today and is the leading cause of premature and wrongful foreclosures in the post-2008 Financial Crisis era.
A substantial portion of MPA’s practice is dedicated to foreclosure defense and litigation support services on behalf of consumers in which we document:
- Lack of standing of the foreclosing entity
- Failure in the conveyance of authority to the foreclosing entity
- Failure to comply strictly with non-judicial foreclosure statutes
- Inaccurate pre-acceleration notice of default and right to cure (¶ 22 of the Mortgage)
- Mortgage servicing abuses
- Bait and switch schemes
- Predatory lending practices
- Fraudulent inducement
- Unconscionable contract
- Misapplication of payments
- Missing and converted payments
- Escrow account problems
- Servicing transfer problems
- Failure to evaluate the consumer for loss mitigation relief
- Failure to process an application for a loan modification as required by Regulation X
- Wrongfully imposed force placed insurance
- Breaks in the chain of title
- Robosigned documents
- Mortgage Fraud
- Fraud upon the Court
- Forgeries and counterfeits
- Violations of the Bankruptcy Code
- Truth in Lending Violations
- Real Estate Settlement Procedures Act Violations
- Fair Debt Collection Practices Act Violations
- Fair Credit Reporting Act Violations
- Unfair and Deceptive Acts and Practices
McDonnell Property Analytics (“MPA”) is often engaged by real estate investors who purchase, hold, and manage residential properties, mixed-use properties, gyms, warehouses, office buildings, apartment complexes, and other types of commercial properties held for long-term investment, business use, or lease.
In most instances, investors will need to secure mortgage financing to purchase, remodel, or refinance the underlying debt to maximize the cash flow potential of the investment. Disruptions can occur when, for example, there is an economic downturn such as in the 2008 Financial Crisis; an anchor tenant fails to pay the rent; the property is damaged by fire, flooding, natural disaster, etc.; or a national emergency has been declared such as in the recent COVID-19 lockdown.
Dealing with disruptions that cause a delinquency or default in mortgage payments can be challenging depending on whether the lender holds the loan in its own portfolio or sells the debt to an investment bank for securitization purposes.
Since commercial consumers’ rights and remedies are strictly contract-based, MPA begins by conducting a review of the terms sheet, note, loan agreement, mortgage, assignment of leases and rents, personal guarantees, etc. that constitute the legal obligation between the parties.
We then translate the note or loan agreement into its mathematical form and effect, which requires a close reading of the interest calculation methodology, default triggers, default interest rates, and the rights of the parties in the event of default.
Using Microsoft Excel, we create a dynamic three-dimensional mathematical model based upon the terms of the loan agreement at issue and compare that to the static two-dimensional monthly mortgage statements and transaction histories provided by the lender or its servicer. This comparative analysis allows us to determine whether the servicer’s mortgage servicing platform is precisely accurate; whether interest rate and payment changes have been calculated correctly; whether escrow deposits and disbursements comply with the terms of the mortgage contract; and whether the servicer has applied the borrower’s monthly payments to the appropriate accounts.
Once we have completed our Financial Forensics Examination we are able to identify errors, overcharges, omissions, and malfeasance in the servicing of a mortgage loan account which give rise to claims such as for breach of contract, negligence, breach of the duty of good faith and fair dealing; and potentially, for recognized exposures under traditional tort theories of fraud, duress, unconscionability, and tortious interference.
Lender liability theories are asserted under contract theories, tort theories, equitable theories, and statutory grounds. In a lawsuit brought by the lender for recovery under the loan documents, courts have held that most lender liability claims are compulsory counterclaims in the lenders’ suit on a note or to recover a deficiency judgment after foreclosure.
Therefore, regardless of whether a commercial consumer brings an affirmative action or defends against the lender’s lawsuit, they are expected to proactively identify their claims and properly assert them in their responsive pleadings.