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 In January, the couple reached a settlement with every company that
had a stake in the mortgage on their house in Santa Cruz,
California, a deal that would have slashed their monthly payment by
almost 40 percent to $3,337. It was the end of a process that
started with their defaulting in 2009.
But when they saw the final paperwork for their settlement, they
found that Ocwen Financial Corp, the company that collected and
processed their mortgage payments, had added an extra clause: they
could not say or print or post anything negative about Ocwen, ever.
The Henards' experience was not unusual. Mortgage payment collectors
at companies including Ocwen, Bank of America Corp and PNC Financial
Services Group are agreeing to ease the terms of borrowers'
underwater mortgages, but they are increasingly demanding that
homeowners promise not to insult them publicly, consumer lawyers
say. In many cases, they are demanding that homeowners' lawyers
agree to the same terms. Sometimes, they even require borrowers to
agree not to sue them again.
These clauses can hurt borrowers who later have problems with their
mortgage collector by preventing them from complaining publicly
about their difficulties or suing, lawyers said. If a collector,
known as a servicer, makes an error, getting everything fixed can be
a nightmare without litigation or public outcry.
A 2013 report by the National Consumer Law Center found that
servicers routinely lost borrowers' paperwork, inaccurately input
information, failed to send important letters to the correct
address—or sometimes just didn't send them at all.
"If your servicer screws up, you can't say anything about it," said
homeowner attorney Danielle Kelley in Tallahassee, Florida. "The
homeowner has no defense."
Gag orders and bans on suing are appearing when borrowers use
litigation to settle foreclosure and loan modification cases. But
they are also popping up when servicers modify loan terms outside of
the courts, known as "ordinary loan modifications," according to
consumer lawyers.
Bank of America doesn't include non-disparagement clauses and
releases of claims in the course of ordinary loan modifications -
just in ones involving negotiated legal settlements, spokesman Rick
Simon said. Waivers don't preclude customers from filing suits on
post-settlement issues, he said.
PNC's vice president of external communications, Marcey Zwiebel,
said "these clauses are part of the consideration we receive for
agreeing to settle the case. This helps to ensure that the
discussion is not re-opened in public after the case has been
settled."
Ocwen declined to comment, citing pending litigation.
Attorneys for lenders and servicers say consumer lawyers are
overstating the importance of these clauses. Banks are looking to
avoid being sued again for the issues resolved in the settlement,
but understand they may be sued if they are responsible for a future
wrong, said Martin Bryce, a partner with Ballard Spahr in
Philadelphia who specializes in consumer finance and banking.
Bryce acknowledges that the language is ambiguous - under the
waivers, homeowners often give up the right to sue on claims
"whether existing now or to come into existence in the future."
The non-disparagement clauses are meant to protect banks from public
insults from borrowers, which the lender can often not respond to
without violating privacy laws, Bryce said.
Banks and servicers have been facing bad publicity along these lines
for years, and while quantifying the impact of this bad-mouthing is
difficult, few banks would choose to face it.
On a Facebook page devoted to denigrating Bank of America, one
homeowner said, "They are without a doubt the worst organization I
have ever dealt with. Keep suing them America! They deserve it!!"
JUST WANTING IT TO END
Clauses preventing future disparagement and lawsuits first started
appearing after the housing crash, but they have grown more
widespread in the last six months, said Ira Rheingold, executive
director of the National Association of Consumer Advocates in
Washington.
In January, the Consumer Financial Protection Bureau, a U.S.
government agency, said it examined two servicers who were requiring
homeowners to give up their right to sue as part of ordinary loan
modifications. The CFPB said the practice was "unfair," and required
the two servicers to cease the practice.
The agency also directed the servicers to stop enforcing existing
waiver clauses and "to provide notice to the borrowers that it would
not enforce these waivers in the future," according to a CFPB
Supervisory Highlights bulletin. The agency didn't name the two
servicers.
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These clauses are likely more popular because mortgage companies are
trying to stem their expenses from the housing crisis, which
triggered some 5.1 million foreclosures, consumer lawyers said.
Having helped create the foreclosure epidemic, banks are now paying
the price, spending billions of dollars on fines, penalties,
mortgage settlements with borrowers, and other charges associated
with working through the glut of bad loans.
Since 2009, Bank of America alone has logged some $50 billion of
expenses for settlements of lawsuits and related legal costs, many
of them linked to mortgages. Without those charges, its income
before taxes would have been about three times higher.
Homeowner attorneys say they advise their clients not to sign
non-disparagement agreements. But some of them do so just end the
ordeal.
"I try to talk my clients out of agreeing to it, but a lot of times
they will agree," said Pamela Simmons, an attorney with the law
office of Simmons & Purdy in Soquel, California.
LOAN MODIFICATIONS
During the past few years, loan servicers have been renegotiating
mortgage terms with borrowers who have fallen behind on their
payments. Since the housing crash, there have been about 1.3 million
loan modifications done under the government's Home Affordable
Modification Program, according to the U.S. Department of Treasury.
Servicers have done an additional 5.6 million modifications
in-house.
Companies like Ocwen say that modifying mortgages is cheaper than
foreclosing. Servicers modify mortgages through some combination of
changing monthly payments or interest rates, lengthening the terms
of loans, and changing the principal owed, either by forgiving some
of the loan or by adding on penalties and fees to make it bigger.
The 2012 National Mortgage settlement, which covered Ally Financial
Group, Bank of America, Citigroup Inc, JPMorgan Chase & Co and Wells
Fargo & Co prohibited the use of waivers during the course of
offering normal loan modifications—though it did allow for waivers
in the event of litigation. Waivers were also forbidden under HAMP
modifications.
That still leaves plenty of room for servicers to try to block
borrowers from suing, or to use gag clauses.
Attorneys say the experience of the Henards was typical: the gag
orders often pop up after borrowers think deal negotiations have
been completed.
The Henards balked when they saw the Ocwen clause stating that they
were to "not make any derogatory and/or disparaging comments about
Ocwen or publish or discuss this Agreement or the settlement and
compromise evidenced hereby on the internet or with the media."
"We are worried about them coming back against people in the
future," said Dan Mulligan, the Henards' attorney. "It's just a risk
you don't want to take." The Henards have about $680,000 outstanding
on their mortgage.
Ocwen responded in court documents that the language was "standard
boilerplate." The Henards haven't signed the non-disparagement
clause. The issue is still being dealt with by the two sides'
lawyers.
Consumer lawyers also object to being gagged themselves. Some
lawyers challenge the banks to strike the language — or water it
down. Attorneys also sometimes instruct their clients to fire them.
That way, the homeowner can agree to the terms while the attorney
doesn't have to.
"The banks are attempting to hold our clients hostage with a
provision they know we cannot agree to," said University of Notre
Dame law professor Judith Fox, who runs a clinic for troubled
homeowners and who has also petitioned the Indiana Bar Association
over attempts to muzzle attorneys. "It is coercive and unethical."
(Reporting by Michelle Conlin, Editing by Dan Wilchins and John
Pickering)
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