B of A Fends Off Fine in Mortgage Case

Orlando, Fla. — Faced with one of the heftiest fines on record in Orlando’s federal bankruptcy court, Bank of America Corp. apologized earlier this year for missing court hearings, ignoring a judge’s orders and pestering a local couple for mortgage payments they didn’t owe.

But then the bank put its lawyers to work.

Now, after months of arguing that it had never received “adequate notice” of those earlier court proceedings, Bank of America has fended off the $220,000 fine by accepting a mortgage modification it had first approved 2 1/2 years ago but had been ignoring ever since, court documents show.

U.S. Bankruptcy Judge Karen S. Jennemann, who imposed the fine on Bank of America in March, lifted the sanction last month and approved a joint settlement between the bank and the Orange County, Fla., couple that confirms the previous mortgage deal. It also calls for the bank to, among other things, pay the couple $72,000 in cash relief and $10,000 to cover legal fees.

The judge’s order, signed July 17, appears to end the baffling case of Warren Hougland and Mary Grant-Hougland. Court records show the bank approved the mortgage-relief plan in January 2011, inexplicably rescinded its approval in May, then kept trying to collect the older, higher mortgage payments despite court orders to the contrary.

Jennemann’s sanction, which included the $220,000 fine and an order to award the house free and clear to the couple if Bank of America didn’t pay up, finally brought Bank of America to the table, court records show.

“The judge wanted to get their attention, and she certainly did,” said Todd Budgen, an Orlando bankruptcy lawyer who reviewed the court record but was not involved in the case. “It looks to me like the homeowners cut the bank a break — they would have gotten much more through the sanction, but they just wanted to pay a fair price for their home.

“Now it’s a win-win: They get to keep their home, and the bank saved a lot of money.”

Still, the case exposed a breakdown in communication within Bank of America’s mortgage-services operation, a lawyer for the couple said in case filings.

“The blindness of the bank’s right hand to the actions of its own left hand, whether intentional or caused by the fog of its administrative morass, does not excuse Bank of America’s failure to honor the orders of federal courts,” Clermont, Fla., lawyer Jimmy Crawford wrote in a pre-settlement motion.

“Nor does it excuse the inability of the right hand to recognize the legitimate modification granted by the left hand,” he added.

When asked about the case, Bank of America would not comment on how the mix-ups had occurred. Instead, the bank cited its record of successful mortgage modifications.

“We are pleased that this matter is resolved,” a spokeswoman said in a prepared statement. “Since this housing crisis began, we have completed more than 1.25 million modifications.”

After the judge imposed the fine, Bank of America lawyers claimed the couple’s lawyers and the court had failed to mail notices of hearings and orders to the proper addresses. They insisted that a $220,000 fine was excessive and unjustified, given the lack of proper notice.

Lawyers for the couple countered the bank’s claim by citing court documents and Bank of America documents that displayed the bank’s mailing addresses for correspondence related to the Houglands’ loan modification.

The financially strapped couple declared Chapter 13 bankruptcy in 2010 to restructure their debts and attempt to save their home. The court “stripped” the second mortgage from the property in 2011, declaring it an unsecured debt. The Houglands made every court-ordered payment on their restructured debt, except for one month in late 2011, court records show.

How do homeowners in similar situations avoid getting caught in such a bureaucratic foul-up?

There’s no easy answer to that question, said Amy Goodblatt, another Orlando bankruptcy lawyer who works with loan-modification clients. It’s hard enough for lawyers, much less their clients, to deal with the various customer-service representatives and legal teams often involved in a bank’s loan-modification process, she said.

“For people not in bankruptcy, this is a huge problem,” Goodblatt said. “They have to make sure they get written confirmations, with names, dates and times. Also, it helps to find the bank’s officers and copy them on discrepancies, as well as federal regulators.”

The Florida attorney general’s office recently raised questions about Bank of America’s compliance with a multistate, $25 billion mortgage-fraud settlement with Bank of America and four other major U.S. lenders. The deal is supposed to protect homeowners from problems such as the one that befell the Houglands.

“In response to these issues, Bank of America has committed to us that they will provide us with information regarding complaints from borrowers in foreclosure so our office can help resolve the borrowers’ issues,” the AG’s Office said in a prepared statement last week.

“Also, they have committed to us that they will replace any foreclosure counsel who is not communicating adequately with us or with the borrower.”