Two years ago, a Chicago loan officer was charged with defrauding elderly homeowners in a reverse mortgage scam by taking out reverse mortgages without their knowledge or misrepresenting the terms of the loan in order to convince them to get one.
The case involved 125 African American families and about six different HECM lenders. The result cost these homeowners and the lenders $7 million and left a number of unwitting borrowers facing foreclosure.
Three of those homeowners now have claims regarding their reverse mortgages with Reverse Mortgage Solutions, a Ditech subsidiary that that was either the lender or servicer on the loans that were part of the alleged scheme.
But now, Ditech is in the midst of a bankruptcy that might impact these fraud victims, said J. Samuel Tenenbaum, director of Northwestern’s Complex Civil Litigation and Investor Protection Center, who is representing some of the victims.
On Friday, Tenenbaum filed a request with the U.S. Trustee, asking for the creation of a committee of consumer creditors to represent borrowers who have loans with Ditech or its subsidiaries.
In the filing, Tenenbaum said the request was “based upon our observations of the types of servicing abuses Ditech and RMS consumers have suffered, as well as the type of wrongful action our clients have suffered, and our concern that consumers may be without recourse to appropriately address these errors if their interests are not specifically represented in bankruptcy.”
Of particular concern is the fact that Ditech has asserted that its loans currently in foreclosure should not be subject to an automatic stay as ordered by the bankruptcy court.
“Our fear is that this preclusion would strip RMS foreclosure litigants of their rights and impose undue hardships thereon without any enforceable remedies,” Tenenbaum wrote, adding that many of his clients are elderly, disabled and financially unstable, and therefore vulnerable.
Currently, the court has established a committee of creditors, to which it has added two consumer representatives. Tenenbaum said he does not believe this to be adequate.
He said the creation of a committee tasked solely with protecting their interests would ensure that these borrowers – and others who may be unaware of the bankruptcy or unable to afford a lawyer – do not suffer as a result of Ditech’s financial woes.
Since filing, Tenenbaum has received support from other attorneys who represent Ditech creditors and also fear their rights could be trampled in the bankruptcy.
“There’s a lot of people who could be negatively affected,” Tenenbaum told HousingWire. “We just want to make sure that the bankruptcy does not do anything that negatively impacts consumer rights.”