Ocwen Cease and Desist Orders: It’s business model may be terminally impaired

By K.K. MacKinstry

20 states issued Cease-and-Desist orders against Ocwen Financial Corporation today and a lawsuit from the Consumer Financial Protection Bureau followed shortly thereafter.  Mortgage regulators cited mismanagement of escrow accounts and poor financial conditions as reasons for the orders.

Ocwen, a Florida-based company, was instructed not to acquire any new mortgage servicing rights and residential mortgages until it can demonstrate its financial stability through an audit of liabilities as well as justify its collection and calculation procedures regarding customer funds.

The action is a result of a six-state examination of Ocwen conducted between 2013 and 2015, which revealed irreconcilable consumer escrow accounts, unlicensed servicing activity and “significantly deteriorating” financial conditions among other irregularities.

North Carolina filed a regulatory brief that said the states had repeatedly confronted Ocwen’s Board that the ongoing violations “were unacceptable and would not be tolerated.”

Ocwen failed to provide the requested financial documents, which triggered the firm and regulators to enter into a Memorandum of Understanding  (MOU) requiring Ocwen to submit a business plan that would address consumer grievances and the hiring of an independent auditor to review finances.   Despite that activity in 2016, regulators discovered Ocwen continued to operate outside regulations.

“Ocwen has engaged in, is engaging in, or is about to engage in acts or practices which warrant the belief that the company is not operating honestly, fairly, soundly, and efficiently in the public interest, and/or in violation of standards governing the licensing and conduct of a mortgage loan servicer,” the North Carolina filing states. “The public interest will be irreparably harmed by delay in issuing a cease and desist order to Ocwen.”

Ocwen shares were trading down 55.2 percent to $2.46 when the markets closed.

Ocwen released a statement around 2:30 pm Eastern today that said:

“Ocwen strongly disputes the CFPB’s claim that Ocwen’s mortgage loan servicing practices have caused substantial consumer harm. In fact, just the opposite is true. Ocwen believes its mortgage loan servicing practices have and continue to result in substantial benefits to consumers above and beyond other mortgage servicers. The substantive allegations in today’s suit are inaccurate and unfounded. Indeed, the Company is unaware of the CFPB conducting any detailed review of Ocwen’s loan servicing files. Rather, the CFPB suit is primarily based on the CFPB’s flawed review of data and its self-serving conclusion about isolated instances where Ocwen self-identified ways we can do better.”

“Ocwen fully cooperated with the CFPB’s inquiries, and sought to find a fair and reasonable solution to the extent the CFPB identified legitimate concerns. Indeed, Ocwen continued to work with the CFPB until the suit was filed. Under these circumstances, Ocwen has a responsibility to its customers, shareholders, and employees to vigorously defend the Company against these unfounded claims.”

Sub-prime mortgage servicer Ocwen Financial is under an order that prohibits the acquisition of new mortgage servicing rights and the origination of mortgage loans by Ocwen Loan Servicing.

Here are the summary findings from the C&D (link)

The Commissioner of Banks (“Commissioner”) having determined that Ocwen Financial Corporation has engaged in, or is engaging in, or is about to engage in, acts or practices constituting violations of state and federal law and applicable regulations, hereby issues the following FINDINGS OF FACT and ORDER TO CEASE AND DESIST.

And some further details:

During the audit, the Examining States identified several violations of state and federal law, including consumer escrow accounts that could not be reconciled and willful and ongoing unlicensed activity in certain states. Additionally, it was determined that Ocwen’s financial condition was significantly deteriorating as we have reported over the last year.

Although the Examining States were unable to gather comprehensive documentation of the extent of unlicensed activity because Ocwen’s management failed to respond to requests for information in a timely manner, the examination found that Ocwen subsidiaries were conducting unlicensed servicing activity in numerous jurisdictions.

The examination found that Ocwen has been unable to accurately reconcile many of the consumer escrow accounts in its portfolio. Consumer escrow accounts are accounts that contain consumer funds held for the payment of taxes and insurance. The examination further found that Ocwen failed to make timely disbursements to pay for taxes and insurance from escrow accounts on numerous loans and that Ocwen routinely sent consumers inaccurate, confusing, and/or misleading escrow statements.

In 2015, Ocwen failed to provide key financial documents and reconcilements of its financial statements to regulators.

The MOU required Ocwen to retain an independent auditing firm to perform a comprehensive audit and reconciliation of all consumer escrow accounts, with a report to be furnished by the Auditor to Ocwen and the MMC within five business days thereafter. The audit plan was to be submitted to, and approved by, the MMC no later than January 13, 2017.

Ocwen’s response to the state regulators on January 13, 2017, was that the reconciliation of escrow accounts, which is paramount in ensuring the appropriate management of consumer funds, would cost $1.5 billion and be well beyond Ocwen’s financial capacity to fund. Ocwen has suggested instead that a sample of 457 escrow accounts be reconciled out of 2.5 million active first lien escrow accounts that Ocwen has serviced since January 2013. This proposal could leave a vast number of consumers with unaudited and inaccurate escrow accounts.

The company is currently facing numerous substantiated consumer complaints regarding escrow accounts that have been mismanaged, resulting in significant harm to consumers, and request for reimbursement of monies wrongfully withheld or misapplied.  LendingLies has several Ocwen clients that have been unable to obtain copies of notes, have discovered forged assignments and where Ocwen is unable to provide the name of the holder in due course or actual creditor.  As of last week, Ocwen cancelled a foreclosure sale of a Texas client that will not be rescheduled until February 2018.  We thought it was odd that the sale would be prolonged for such a long period of time if Ocwen does in fact have standing to proceed.

Ocwen’s going forward plan submitted in response to the MOU did not provide a complete assessment of its financial condition because it excluded significant liabilities. If Ocwen’s plan accurately accounted for known or anticipated regulatory penalties and other operational costs, including, but not limited to, the expenses of moving to a new servicing platform and complete reconciliation of consumer escrow accounts with restitution to impacted borrowers, it would indicate that Ocwen’s ability to survive is in jeapordy.

The stock is plunging on the news that its business model may be terminally impaired.

In addition to D.C., the following states participated in today’s actions, according to the organization: Arkansas, Connecticut, Florida, Hawaii, Idaho, Illinois, Maine, Massachusetts, Mississippi, Montana, Nebraska, Nevada, North Carolina, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, West Virginia, Wisconsin, and Wyoming.

We encourage Livinglies readers who have loans serviced by Ocwen to reach out to the regulators, state attorney generals and CFPB and lodge complaints.

BLOOMBERG: HOA V BOA: Homeowner Associations Step Up the Pressure on Banks

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Homeowner Associations Wake Up to Collections and Profit!!

FORECLOSING ON THE BANK!!

EDITOR’S COMMENT: Becker and Poliakoff in South Florida is probably the largest law firm representing homeowner associations in the U.S. Once upon a time I was a competitor in Florida when I represented several hundred associations. It was Becker, Poliakoff and Streitfeld until Jeffrey Streitfeld went on the Bench to become a Circuit Judge — and I might add, one of the best.

Some time ago I predicted that homeowner associations would wake up to the realities:

  1. The banks have a strategy where they don’t officially take responsibility for the property until they are forced to do so. They do this because they don’t want to pay HOA dues, maintenance and special assessments. They also avoid taxes sometimes, but that is a different  ball of wax. 
  2. Associations are realizing that they have rights to collect on homes where the homeowners dues, maintenance payments and special assessments have not been paid while the bank is the de facto owner of the property. 
  3. In many cases, when confronted with an aggressive and knowledgeable law firm, long steeped in HOA matters, the bank simply folds, pays up and everyone goes on their way. But in other cases, the bank still drags their feet leading to both a solution and an opportunity for the association: FORECLOSURE ON THE BANK. And Becker and Poliakoff and other attorneys representing associations have caught onto the fact that there is money in those mountains of paper. 
  4. As shown below, foreclosing on the banks not only recovers money where the bank finally pays up, but actually results in the sheriffs sale of the property at a legitimate auction in which the association need only bid the amount of its lien. Some people don’t realize that the lien of the association for unpaid dues, maintenance or special assessments is a perfected lien, if filed properly, and subject tot he exact same foreclosure process as any mortgage.
  5. When the bank pays, they pay interest, costs of filing, and attorney fees, which is a big ouch.
  6. When they don’t pay, the association gets a declaration from the Judge that the property is owned de facto by the bank, and then enters a final judgment of foreclosure, which results in the sale.
  7. If the Association is the winning bidder, they get the house. So if the unpaid dues are $10,000, the association gets it. And if the house even in a down market is worth $80,000, the Association turns around, sells the property at an attractive distressed price, nets $70,000 which can do a lot to correct their budget and to wash out the unpaid assessments on that particular condo, town-home, coop or HOA dwelling unit. There are some wrinkles here, but I don’t want to give the banks any help.
  8. This is why I have suggested that distressed homeowners actually partner with the associations in the foreclosure of their own home. Under the right configuration of facts and documents and pleadings and judgment, the homeowner can strip the mortgages (which are probably invalid anyway) as an encumbrance on their residential dwelling unit. The homeowner can exercise a right of redemption after the foreclosure sale eliminated the non-creditor pretender lenders from the title chain, pay off the HOA balance, and start paying dues, maintenance and special assessments. I suspect that Becker and Poliakoff is headed exactly in that direction and I applaud them for it.

Homeowner Associations in Need of Cash Sue to Force Foreclosures

By John Gittelsohn – Aug 23, 2011 9:01 PM MT

Ben Solomon, an attorney with Association Law Group, left, and Jane Losson, a board member of the Vintage East Condominium Association, stand for a photograph in Miami Beach, Florida. Photographer: Mark Elias/Bloomberg

Ben Solomon, an attorney with Association Law Group stands for a photograph while Jane Losson, a board member of the Vintage East Condominium Association, talks on the phone in the kitchen of repossessed unit in Miami Beach, Florida. Photographer: Mark Elias/Bloomberg

Members of the Vintage East Condominium Association in Miami Beach got tired of waiting for JPMorgan Chase & Co. (JPM) to foreclose on unit 9, so they sued the bank in February to take control of the property.

In June, more than four years after the owner stopped making payments, a judge ruled that JPMorgan lost its claim to the $144,000 mortgage. The apartment is now on the market for $87,500, and the association may stave off insolvency with proceeds from the sale and a new owner who pays monthly dues, said Jane Losson, a board member at the complex. Four of the 11 other owners at the property are also behind on dues.

“I find it an outrage that the bank had decided to do nothing and the other owners got stuck,” Losson, who’s had her Vintage East condo since 2004, said in a telephone interview. “If we get this unit sold, we’ll have a little money.”

Financially troubled condo associations are taking banks to court as foreclosure delays enable delinquent homeowners to stay in their buildings for years, often without paying dues that keep boards running. The groups start by pressuring lenders to speed up home seizures and take over payment of the monthly fees. In extreme situations, like the Vintage East case, associations may force banks to give up rights to the property.

“The lenders are stalling foreclosures,” Ben Solomon, the Miami Beach attorney for the Vintage East association, said in a telephone interview. “Our complaints say the banks abandoned their interest and either need to accept responsibility for the title or walk away.”

‘Mortgage Terminator’

Solomon, whose Association Law Group represented homeowner boards in 16 Florida counties with 15,000 delinquent owners, also won what he calls “mortgage terminator” lawsuits in claims against Bank of America Corp. (BAC), Citigroup Inc. (C), Deutsche Bank AG (DB) and Wells Fargo & Co. (WFC), according to court records.

About 60 million people, or one in five Americans, live in residences with condo or homeowner associations, according to the Community Associations Institute, a trade group in Falls Church, Virginia. States with some of the highest foreclosure rates — Florida, Nevada, California and Arizona — are also among those with the biggest share of populations in homeowner associations, said Frank Rathbun, spokesman for the 30,000- member trade group. The associations maintain residents’ common interests such as parking lots, roofs, landscaping and trash removal.

“About 50 percent of our members said the housing crisis and economic downturn have had a severe or serious impact on their association,” Rathbun said in a telephone interview.

Pushing Banks

About one in three Californians live in that state’s 45,000 condo and homeowner associations, said Kelly Richardson, an attorney who specializes in homeowner association law.

“Banks have been slow catching up to reality,” Richardson, with the firm of Richardson Harman Ober PC in Pasadena, said in a telephone interview. “When pushed, they’ll step up to the plate, but you have to push them.”

In Nevada — the state with the highest rate of foreclosure filings, according to RealtyTrac Inc. — delinquent homeowners owe associations about $150 million in back dues, said Steven Parker, president of Red Rock Financial Services, which collects debts for associations in Nevada and five other states.

“It’s probably at least $1 billion for the whole country,” Parker, whose company is a unit of FirstService Corp. (FSV), said in a telephone interview from Las Vegas. “Prior to foreclosure, we get almost nothing from banks. After the foreclosure, probably 30 percent of what we’re collecting is from banks.”

Drop in Foreclosures

U.S. foreclosure filings — notices of default, auction or seizure — fell to their lowest level in almost four years in July, as lenders and government agencies increased efforts to keep delinquent borrowers in their homes and paperwork delays slowed repossessions, RealtyTrac reported Aug. 11.

Filings have plunged for 10 straight months after state attorneys general began probing a practice known as “robo- signing,” in which lenders and servicers pushed through default documents without verifying their accuracy. The decline has been steepest in Florida and other so-called judicial states that require courts to approve foreclosures.

The bank delays have left homes in the delinquency process longer. U.S. homeowners facing foreclosure averaged 587 days without making a mortgage payment in June, up from 251 days in January 2008, according to Lender Processing Services Inc. (LPS), a real estate information company in Jacksonville, Florida.

Florida Delinquencies

In Florida, where 14 percent of homes with a mortgage have a foreclosure notice, the average delinquent borrower hadn’t made a payment for 719 days, or almost two years, LPS data show.

As of June 30, 18.68 percent of home loans in Florida were more than three months delinquent or in foreclosure, the most of any state and more than double the U.S. average of 7.85 percent, the Mortgage Bankers Association reported this week.

“Florida’s numbers continue to drive national numbers,” Jay Brinkmann, chief economist of the Washington-based trade group, said at an Aug. 22 news conference.

Banks often hold off on a foreclosure as long as they can to avoid paying dues, property taxes and occupancy costs, said John Rickel, chief executive officer of Association Dues Assurance Corp., a St. Clair Shores, Michigan, company that collects fees for community associations in 20 states.

“We probably have 100 to 300 banks that we’re trying to collect from right at the moment,” Rickel said in a telephone interview. “We’re always 100 percent successful in collecting against banks because they do have the funds available.”

Limiting Collections

Associations’ rights vary based on state law. In Nevada, the groups have “super priority,” which means they can collect up to nine months of back dues plus costs when a residence sells, even after a foreclosure. In other states, such as Arizona, homeowner associations can sue to garnish wages of delinquent residents, even if they have lost the property.

Florida law limits homeowner associations from collecting more than 12 months of back dues or 1 percent of the outstanding mortgage, whichever is less, after a foreclosure. That cap often doesn’t apply to banks, said Frank Silcox, president of LM Funding LLC, a Tampa, Florida-based company that advances cash to condo associations in exchange for the lien rights on past- due accounts.

“Our attorneys look for a reason the foreclosing bank isn’t entitled to the minimum,” Silcox said in a telephone interview. “Nine out of 10 times, we get the bank to pay.”

In one Miami Beach condo case, LM Funding collected $52,000 — counting late fees, 18 percent interest and collection costs — instead of about $3,000 the bank would have paid under the state limit, he said.

$148,000 in Dues

About 40 percent of LM Funding’s collections come from banks, with the balance from individual homeowners and through short sales, when the lender agrees to sell a property for less than the mortgage balance, Silcox said.

Bonnie Jordan, manager of the Bermuda Dunes Condo Residence Association in Orlando, said LM Funding advanced her $150,000 and recovered an additional $148,000 in back dues, helping the 336-unit development pay its bills after owners of 115 units went into foreclosure.

“We had $375,000 in bad debt,” said Jordan, whose complex charges monthly fees of $250 to $357. “LM Funding is recouping every dime for us.”

While banks present a potentially lucrative source of delinquent dues, they’re also a challenging target because they use legal tactics to prolong the foreclosure process, said Ellen Hirsch de Haan, an attorney with Becker & Poliakoff PA in Clearwater, Florida, who represents homeowner associations.

Canceling Hearings

“The banks are setting and then canceling hearings before the final judgment is eventually entered,” she said in an e- mail, “then setting and canceling the sale date, then failing to record the certificate of title, thereby postponing the actual transfer of title to the bank for months, or even years.”

Bank of America, with 1.1 million mortgages at least 90 days delinquent, addresses non-performing loans as fast as possible while complying with the law, Jumana Bauwens, a spokeswoman for the Charlotte, North Carolina-based bank, wrote in an e-mail. Bank of America loans in which borrowers were at least three months late were valued at $32.5 billion as of March 31, up from $26.97 billion a year earlier, according to Federal Deposit Insurance Corp. data compiled by Bloomberg.

“After exhausting all home-retention efforts, it is in the best interest of servicers and investors to move the foreclosure process along while abiding by Florida laws,” Bauwens said in the e-mail. “On average, homeowners are delinquent 18 months prior to a foreclosure sale. In judicial states like Florida, the process is longer.”

Bank Trustees

To compel banks to act, Solomon’s lawsuits start by suing the homeowner for unpaid dues as a way of seeking title to the property. Then he files a claim against the bank, contending the non-performing loan restricts the association’s right to sell the property because the mortgage is worth more than the home.

The bank defendant is usually a trustee for the loan that was sold into a mortgage-backed security, a legal structure that can leave the party responsible for a mortgage unclear.

Citigroup and Deutsche Bank declined to challenge lawsuits brought by Solomon because both banks were trustees, not the servicers of the delinquent loans, bank representatives said.

In March 2010, Citigroup lost a lawsuit over a Miami Beach condo with a $136,000 mortgage, according to court filings. Danielle Romero-Apsilos, a spokeswoman for the New York-based bank, declined to comment, saying Citigroup wasn’t the servicer.

Deutsche Bank

Deutsche Bank in September forfeited its right to a unit with a $149,300 mortgage to the Palm Aire Gardens Condominium Association Inc. in Pompano Beach, Florida.

“Litton Loan Servicing, the loan servicer for the loan, and not Deutsche Bank as trustee, was responsible for all foreclosure activity relating to the loan,” John Gallagher, a Deutsche Bank spokesman in New York, said in an e-mail.

Donna Marie Jendritza, a spokeswoman for Litton in Houston, declined to comment on the lawsuit, citing privacy restrictions. Litton, which Goldman Sachs Group Inc. is selling to Ocwen Financial Corp., wasn’t named in the complaint or other court documents.

“We sue whoever holds the mortgage,” Solomon said. “The bottom line is the bank had a loan and the mortgage got terminated.”

No Defense

Palm Aire Gardens also won title to a unit with a $184,410 mortgage after Wells Fargo failed to mount a defense because it no longer owned the loan, a transfer that wasn’t reflected in property records, said Tom Goyda, a spokesman. The bank would have defended the mortgage if it hadn’t sold the loan, he said.

The San Francisco-based bank had $9.6 billion in mortgages more than 90 days delinquent and $11.4 billion in non-performing mortgages on one- to four-family homes as of June 30, Goyda said.

JPMorgan, the lender in the Vintage East case, had $2.5 billion in second-quarter costs tied to faulty mortgages and foreclosures, it reported July 14.

“There have been so many flaws in mortgages that it’s been an unmitigated disaster,” Chief Executive Officer Jamie Dimon said in a conference call that day. “We just really need to clean it up for the sake of everybody. And everybody is going to sue everybody else, and it’s going to go on for a long time.”

Vintage East

Thomas Kelly, a spokesman for JPMorgan in Chicago, declined to comment on the Vintage East lawsuit or other cases in which the bank lost properties to homeowner associations.

The bank’s mortgage at Vintage East was on a studio apartment with $24,000 in unpaid back dues, said Losson, the board member. Other residents of the Art Deco complex, built in 1937 two blocks from the beach, loaned the association money to pay for roof and building repairs and wrote personal checks to cover insurance payments, she said.

“We’re still in precarious condition, but we can see our way out now,” said Losson, who estimated the condo association was owed $60,000 in delinquent dues. “We went up against JPMorgan Chase and we won. It’s a good story. There’s a way out of the morass.”

To contact the reporter on this story: John Gittelsohn in Los Angeles at johngitt@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.

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