Lenders face more resistance from borrowers in foreclosures

Three years into the foreclosure crisis, determination is brewing among a small but growing number of homeowners who have decided to fight for their properties.

With a newfound consciousness of their rights as property owners, more Charleston area homeowners are retaining lawyers to represent them in procedural foreclosure hearings. They're also uncovering new ways to identify loopholes in the notoriously disorganized mortgage industry, and they're taking those grievances before judges who might be inclined to stall or even dismiss a questionable case.

Meanwhile, the legal community, which has focused largely on counseling lenders through the foreclosure process, is slowly learning how to take on these cases on behalf of homeowners. They're getting help and encouragement from nonprofit groups that insist the extra effort can at least stall a worthwhile case, buying precious time that could allow an out-of-work homeowner to find a job and get caught up on their payments.

"No doesn't mean 'no' to a lender. It means 'no' for today," said Mary Regan of Family Services Inc., a North Charleston nonprofit that offers free foreclosure counseling. "We go back over and over and over again."

The battle for Cathy and James Cumbee of Ravenel began three long years ago.

Business slowed for James Cumbee, a longtime home inspector, while unexpected medical expenses tugged at the couple's savings. They asked their lender to cut a portion of the 11 1/4 percent interest rate they pay on the mortgage for their double-wide home on a quiet plot of land they share with other family members.

The Cumbees' strategy is to be sharp, organized and persistent. They keep a manila folder that overflows with hardship letters, mailed instruction from lenders, tax documents and a long list of conversations they've had over the phone. Cathy Cumbee can spin off a list of lender representatives she has dealt with over the years: "Juanita, Chris, Karen, Mike, Enrique, Paul, Lisa ..."

The latest is "Deborah," who has put the Cumbees on yet another trial period of lower payments at $461 a month. If they continue to pay that consistently, the lender could make that permanent.

But the battle also has taken its toll. Cathy Cumbee was rushed to the hospital in December with chest pains. And she says she's chronically in pain because of the stress of not knowing whether they'll have to uproot themselves from the only home her two grown children remember.

"It's very frustrating, but you can't give up," she said. "If you give up, you lose everything you've worked for."

Buying time

The Cumbees' payments have kept the lender from filing a foreclosure lawsuit against them, but documents filed in Charleston County court show evidence of the battles waged by others.

One Charleston homeowner, a lawyer, demanded that his case be dismissed because of a legal principle that says a plaintiff who participated in wrongdoing can't claim damages from it. He declined to discuss his legal strategy.

Another homeowner, a car salesman whose income dropped, responded to each claim from his lender with this phrase: "I do not have enough information to answer this question, and I want proof this information is true." At a hearing this past summer, Charleston County Master-in-Equity Judge Mikell Scarborough encouraged the homeowner's lender to look at the defendant's finances one more time before moving the case forward.

Housing advocates and lawyers say judges are willing to listen to a homeowner's story.

Dorchester County Master-in-Equity Judge Patrick Watts said some lawyers are bringing thoughtful arguments during foreclosure hearings that, at the very least, can buy a homeowner more time.

"Their lawyers are protecting those (property owner) rights that they might otherwise waive by not answering the lawsuit or appearing in court," said Watts. He noted that a majority of foreclosure cases still go uncontested.

Foreclosure law remains a tricky niche that few lawyers are willing to take on in defense of homeowners, said Sue Berkowitz of the Columbia-based Appleseed Legal Justice Center. A good attorney needs to understand state property laws, U.S. Department of Housing and Urban Development standards, the mortgage-origination process and standard guidelines, such as the Real Estate Settlement Procedures Act.

"It's very specialized, and it takes a lot of drilling down to learn these areas of the law," said Berkowitz, who helped organize a series of statewide foreclosure law training sessions that drew about 50 lawyers.

Mount Pleasant attorney Mary Leigh Arnold, who has taken on two dozen foreclosure cases so far this year, said there's no winning formula.

"These are hard cases -- very hard cases -- and you have to look carefully at each one," she said.

Fact checking

A handful of lawyers across the country have successfully argued that the mortgage lender that filed the foreclosure lawsuit didn't have the authority to do so, Arnold said.

With the fluid nature of mortgages that have been bundled together and sold off as securities to investors, some lawyers showed that the corresponding legal documents weren't properly recorded and transferred during some transactions.

South Carolina homeowners also may be able to delay their cases if they can prove their lenders didn't check to see if they're eligible for lower mortgage payments through the Making Home Affordable program, a nationwide homeowner-rescue effort. A S.C. Supreme Court order handed down in 2008 requires lenders to check for eligibility.

Another lender misstep grabbed national attention in September when some of the country's top mortgage lenders -- GMAC Mortgage, JP Morgan Chase and Bank of America -- stopped proceedings on thousands of foreclosures to check their work. The review was triggered by several mortgage employees who admitted signing hundreds of legal documents a day without properly reading them.

Lenders have finished most of their internal reviews, but the ordeal shed light on another way that homeowners could check for missteps.

Regan of Family Services said uncovering errors by lenders could give homeowners more negotiating power. All the while, if the foreclosure case is held up, that gives both the borrower and the economy time to recover.

Improvements in the job market could make it easier for out-of-work homeowners to find employment, while a housing market turnaround could help them sell their properties or get some equity to bargain with.

Waiting for a recovery could work for some, but economist Adam Goldin of Moody's Analytics said the economic picture a year from now doesn't look very different from today. His Pennsylvania-based economic analysis firm forecasts that the region's home values likely will stay put and homes will sell at the same pace as this year.

Meanwhile, he expects the local economy to add 4,000 or 5,000 jobs throughout 2011, not enough to make a "discernible dent" in the region's jobless rate, Goldin said.

An estimated 29,000 Charleston area residents want work but can't find it, according to the most recent survey by the U.S. Bureau of Labor Statistics.

Ironically, foreclosures themselves may be to blame for delaying the economic recovery. The pile of bank-owned, empty homes for sale, often at a discount, are a big drag on all residential property values.

Frank Hefner, an economics professor at the College of Charleston, said lenders are having trouble putting a value on the stockpiles of property they have seized. Without knowing that value, they're proceeding conservatively.

"The foreclosure crisis -- the macroeconomics of it --it's going to draw the financial malaise out much longer," Hefner said. "It puts financial institutions in an awkward situation, and it puts (off) getting the housing market moving."

Reach Katy Stech at 937-5549.